Q&A Hero

Q: A portfolio manager with a beta less than one should be expected to provide higher returns than the market.

Q: Sharpe uses beta as a measure of risk.

Q: Major studies have shown that fund managers in general are unable to efficiently diversify the portfolios primarily due to a small number of securities.

Q: Treynor uses beta as a measure of risk.

Q: The effectiveness of portfolio diversification can be measured by the coefficient of determination, which is the correlation between excess returns on the market and those on the fund.

Q: Studies by Ippolito and Goodwin indicate that mutual fund managers are superior performers.

Q: The hurdle rate is:A.the rate of money expenditure in a new venture.B.the rate charged to the most credit-worthy investors.C.the rate paid to the investors before the general partners' cut.D.the rate of interest charged on the borrowing firm by the venture capitalists.

Q: Michael Jensen uses the security market line to evaluate excess returns on investments.

Q: Limited partners in venture capital investment funds typically receive ____ of the profits.A.20%B.100%C.50%D.80%

Q: A follow-on fund is:A.a fund which follows new emerging ventures.B.an existing fund that is raising another fund.C.a very risky hedge fund.D.a special type of CD.

Q: Under the Sharpe, Treynor, and Jensen approaches, the return measurement must be compared to risk in some form.

Q: Kohlberg Kravis and Roberts (KKR) is best known as a:A.hedge fund.B.buy-out fund.C.no-load fund.D.core-satellite fund.

Q: When the U.S. T-bill rate is 5.75%, the excess returns on a portfolio earning 14% would be 8.25%.

Q: What is characteristic of late-stage companies?A.They are near bankruptcyB.They are late to bring products to the marketC.They are producing and shipping goods and are often two or three years away from an initial public offeringD.They are highly risky, and the failure rate for venture capital investors is quite high

Q: The wise money manager will generally adhere strictly to stated objectives.

Q: What are buy-out funds?A.A hedge fund that buys out overstocked inventoryB.A fund that purchases existing public companies or a division of a public company that needs to be restructuredC.A fund which holds only money market securitiesD.None of the above

Q: In general, the best portfolio managers are those who earn the highest returns.

Q: What is a major reason that entities invest in private equity funds?A.Higher returns than can be earned from the stock marketB.The joy of seeing new companies start upC.The safety of the investmentD.None of the above

Q: Seed capital is usually supplied by investors called:A.hard-core investors.B.angel investors.C.hedge fund investors.D.None of the above

Q: The most common categories of private equity are:A.collectibles.B.venture capital, leveraged buyouts, and mezzanine debt.C.money markets.D.None of the above

Q: One exit strategy for venture capitalists is:A.to pull their money out when the company first makes a profit.B.the company goes public.C.to stop funding the venture.D.None of the above

Q: All equity investments in nonpublic companies is referred to as:A.core-satellite strategy.B.a hedge fund.C.private equity.D.None of the above

Q: A corporate venture capital fund is:A.a fund operated by private investors.B.a fund operated by a corporation.C.a fund operated for a non-profit.D.None of the above

Q: Why do alternative investments make sense for institutional investors?A.They reduce the rate of return and increase the standard deviation of the portfolioB.They increase the rate of return and reduce the standard deviation of the portfolioC.They reduce the rate of return and reduce the standard deviation of the portfolioD.They increase the rate of return and increase the standard deviation of the portfolio

Q: The venture fund managers are also called:A.core specialists.B.general partners.C.hurdle managers.D.None of the above

Q: Hedge fund managers today construct a portfolio with a beta that:A.is lower in rising markets and a higher in falling markets.B.is higher in rising markets and lower in falling markets.C.is market neutral.D.is not relevant.

Q: One method professional managers use to manage pension funds, endowment funds, foundations, and other large portfolios that have a long-term focus with required payout is the:A.Markowitz method.B.core-satellite portfolio approach.C.market line method.D.capital market line method.

Q: Alfred Jones' original strategy was to:A.identify strong and weak stocks, buy strong ones, short the weak ones, and use leverage to enhance the returns.B.buy only weak stocks and hold them long.C.buy only strong stocks and hold them long.D.identify strong and weak stocks, buy weak ones, short the strong ones, and avoid leverage.

Q: Relative to other asset classes, hedge funds are:A.not highly correlated.B.negatively correlated.C.not correlated at all.D.related only to the currencies.

Q: The first hedge fund used a strategy to:A.hedge against a rising market.B.hedge against a falling market.C.speculate on a rising market.D.speculate on a falling market.

Q: The risk/return trade-off with hedge funds over time has been:A.negative.B.positive.C.neutral.D.undetermined.

Q: Other types of hedge funds deal in areas like:A.collectible football cards.B.artwork masterpieces.C.currencies and commodities.D.collectible muscle cars.

Q: The first hedge fund was created in 1949 by:A.Dow Jones.B.William P. Standard.C.Alfred Jones.D.Michael Milken.

Q: Hedge funds:A.are open about their trading strategies.B.are secretive about their strategies.C.trade using only one brokerage.D.None of the above

Q: A strategy that buys a convertible security for the income and then sells the common stock short is called:A.convertible arbitrage.B.no-bias arbitrage.C.long/short bias.D.merger arbitrage.

Q: Merger arbitrage funds:A.make their money investing in only foreign funds.B.make their money betting on the long position of utility stocks.C.make no money, only hold long portfolios.D.make their money betting on the completion or failure of the merger.

Q: Hedge funds are:A.regulated by the SEC.B.private limited partnerships.C.unregulated by the SEC.D.Both B and C

Q: A shopping center has annual net operating income of $1,050,000 and a capitalization rate of 8%. What is its value?

Q: A fund which invests in companies that are in or close to bankruptcy is called:A.a short/long bias fund.B.a market neutral fund.C.a distressed fund.D.a sloan fund.

Q: The best time to buy collectibles is when: A.the bloom is off the market and dealers are overburdened with inventory. B.there is a weekly story in The Wall Street Journal or BusinessWeek about fortunes being made in the collectible market. C.the economic outlook is moving from inflation to deflation. D.the economy is at a peak, headed for a downturn.

Q: Any change in the value of a company due to an event can create an opportunity to profit. What fund takes advantage of this fact?A.Event-driven fundB.No-bias fundC.Long/short equity fundD.Distressed fund

Q: Common date gold coins may trade at ________ their pure bullion value. A.50-75% of B.100% of C.2 to 3 times D.50 to 100 times

Q: A fund that always has a negative bias and can be 100% short or a blend of short and long is:A.a no-bias fund.B.an event-driven fund.C.a short-bias fund.D.a long-bias fund.

Q: In evaluating a general partner of a limited partnership, an investor should be sensitive to his or her: A.experience. B.possible lawsuits. C.law degree. D.A and B

Q: In recent times, suppliers of second mortgages have often been: A.buyers of real estate. B.Real Estate Investment Trusts (REITs). C.sellers of real estate. D.real estate brokers.

Q: The No-Bias hedge fund strategy is to:A.use multiple stocks to sell short or long.B.pair two stocks in the same industry, sell one short and keep one long.C.use no stocks, only CDs.D.None of the above

Q: Which of the following is not a real asset? A.Mickey Mantle baseball card B.100 shares of an REIT C.Gold bullion D.An apartment complex

Q: Market neutral funds are:A.neither long nor short in their strategy.B.only long in their strategy.C.only short in their strategy.D.follow a 45ï‚°Market Line.

Q: Which of the following is NOT a characteristic of real estate investment trusts? A.Similar to mutual funds, they pool investor funds and invest directly in real estate or make construction or mortgage loans B.They provide a tax shelter to wealthy investors C.It is the most liquid type of real estate investment D.All of the above are characteristics of REITs

Q: Real estate investment trusts are similar to mutual funds or investment companies because: A.they do not trade on organized exchanges, but do trade over-the-counter. B.they pool investors' funds. C.they are both limited partnerships. D.All of the above

Q: The most significant advantage(s) of limited partnerships is(are): A.limited liability of limited partners, and direct assignment of profits and losses to the partners. B.unlimited liability of general partners. C.favorable tax treatment of capital gains and management participation features. D.None of the above

Q: Equity participation: A.is popular in commercial real estate. B.lets the lender provide borrowed capital. C.lets the lender provide part of the equity or ownership funds. D.All of the above

Q: Which of the following is a disadvantage of a regular partnership investment arrangement? A.It is the simplest legal arrangement B.There is a well-defined center of responsibility C.The liability of each investor is not limited to his or her investment D.All of the above are advantages

Q: A real estate loan that brings in a new lender is the: A.adjustable rate mortgage. B.graduate payment mortgage. C.second mortgage. D.None of the above

Q: Real assets are: A.tangible assets that may be seen, felt, held, or collected. B.paper assets that are usually traded over an exchange. C.also known as financial assets. D.not diversifiable.

Q: Advantages of real assets over other types of investments include that: A.they provide a good hedge against inflation. B.they tend to be negatively correlated with other types of investments. C.they provide personal pleasure to the investor. D.All of the options

Q: In a(n) ____ arrangement, the borrower may end up making payments to cover not only the loan amortization, but also interest on deferred interest from an earlier period. A.Graduated payment mortgage B.Shared appreciation mortgage C.Adjustable-rate mortgage D.More than one of the above

Q: The best time to buy collectibles such as art, antiques, musical instruments, and the like is when: A.the stock market is down. B.no one else seems very interested. C.a period of high inflation begins to level off. D.None of the above

Q: Which is not an approach to real estate valuation? A.Cost approach B.Comparative sales value C.Price-earnings ratio D.Income approach

Q: Real assets in comparison to financial assets are more likely to produce: A.superior returns. B.high liquidity. C.psychic pleasure. D.deflationary benefits.

Q: Disadvantages of owning diamonds include all of the following EXCEPT: A.they are very expensive to store and insure. B.there are usually high dealer mark ups. C.they are lightweight and easily transported. D.there is a lack of liquidity.

Q: Depreciation A.on residential real estate property can be written off over 31 1/2 years. B.on commercial real estate can be written off over 39 years. C.can be accelerated for commercial real estate. D.None of the above

Q: Which of the following statements is NOT true? A.Like gold, silver is a good hedge against inflation B.Silver has extensive industrial and commercial uses C.The supply of silver immediately increases with the price of silver D.All of the above are true

Q: Real estate is a particularly good investment among real assets because of: A.depreciation write-offs. B.appreciation in value due to price appreciation. C.long-term financing. D.All of the above

Q: Which of the following allow the individual to invest in gold without actually owning gold? A.Gold stock B.Gold futures C.Options on gold futures D.All of the above

Q: Compared to other investments, which of the following is not a disadvantage of investing in real assets? A.The initial amount of money is usually large B.The absence of a relatively efficient, liquid market C.High transaction and incidental costs D.All of the above are disadvantages

Q: Gold ownership is considered a hedge against inflation.

Q: The gold coin that trades at the smallest premium over its pure bullion value is: A.gold bullion coins. B.common date gold coins. C.old and rare coins. D.the American double eagle.

Q: Historically, the best time to own gold and silver is: A.when the stock market is declining. B.when there is significant political instability or anticipation of war. C.during periods of high inflation. D.All of the above

Q: Real assets may be effective for portfolio diversification because: A.they provide an effective hedge against deflation. B.they are perceived as a safe haven for investments. C.real and financial assets are less positively correlated than financial assets alone. D.None of the above

Q: A limited partnership can be either private or public in nature.

Q: Real assets often increase in value when: A.higher levels of inflation are anticipated. B.the stock market is advancing. C.the public is confident about world events. D.bond prices are advancing.

Q: In a blind pool arrangement, funds are provided to the general partner to select properties for investment.

Q: Collectible items are considered to be real assets.

Q: Under an equity participation arrangement, the lender not only provides the borrowed capital, but part of the equity ownership funds as well.

Q: No one in a limited partnership arrangement has unlimited liability.

Q: Limited liability is particularly important in real estate because mortgage debt obligations may exceed the net worth of participants.

Q: The negative impact of tax reform on real estate was partly associated with declining economic conditions in various sections of the country during the late 1980s and early 1990s.

Q: A shared appreciation mortgage usually has an interest rate below current market rates.

Q: Graduated payment mortgages may require payment of interest on accumulated, unpaid interest.