P2.T8. Investment Management

Practice questions for investment management and risk management

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  1. Suzanne Evans

    Question 9: Fama-French factor

    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low liquidity factors Answer: D Explanation: While liquidity may indeed by a factor, the...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low liquidity factors Answer: D Explanation: While liquidity may indeed by a factor, the...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? ...
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  2. Suzanne Evans

    Question 99: Trades

    Hi srinivas, This is from the (difficult) section 7.5.2 in Chapter 7 of Jorion (Portfolio Risk: Analytical Methods). He says it comes from CAPM where: Return(i) - RF = [Return (Market) - RF]*beta(i), Excess return (i) = Excess return (market) * beta(i), such that Excess return (i) / beta(i) = Excess return (market) = constant The use of marginal VaR follows as they are so nearly...
    Hi srinivas, This is from the (difficult) section 7.5.2 in Chapter 7 of Jorion (Portfolio Risk: Analytical Methods). He says it comes from CAPM where: Return(i) - RF = [Return (Market) - RF]*beta(i), Excess return (i) = Excess return (market) * beta(i), such that Excess return (i) / beta(i) = Excess return (market) = constant The use of marginal VaR follows as they are so nearly...
    Hi srinivas, This is from the (difficult) section 7.5.2 in Chapter 7 of Jorion (Portfolio Risk: Analytical Methods). He says it comes from CAPM where: Return(i) - RF = [Return (Market) - RF]*beta(i), Excess return (i) = Excess return (market) * beta(i), such that Excess return (i) /...
    Hi srinivas, This is from the (difficult) section 7.5.2 in Chapter 7 of Jorion (Portfolio Risk: Analytical Methods). He says it comes from CAPM where: Return(i) - RF = [Return (Market) -...
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  3. Suzanne Evans

    Question 98: Porfolio risk

    Question: When does portfolio risk reach a global minimum? A. Marginal VaRs are equal B. Marginal VaRs = 1.0 C. Highest Sharpe ratio D. (expected return/beta) is constant Answer: A Explanation: Keep in mind the EFFICIENT FRONTIER STARTS at the minimum risk portfolio (i.e., the portfolio with the lowest volatility) which here is the GLOBAL MINIMUM. Answers (C) and (D) refer to...
    Question: When does portfolio risk reach a global minimum? A. Marginal VaRs are equal B. Marginal VaRs = 1.0 C. Highest Sharpe ratio D. (expected return/beta) is constant Answer: A Explanation: Keep in mind the EFFICIENT FRONTIER STARTS at the minimum risk portfolio (i.e., the portfolio with the lowest volatility) which here is the GLOBAL MINIMUM. Answers (C) and (D) refer to...
    Question: When does portfolio risk reach a global minimum? A. Marginal VaRs are equal B. Marginal VaRs = 1.0 C. Highest Sharpe ratio D. (expected return/beta) is constant Answer: A Explanation: Keep in mind the EFFICIENT FRONTIER STARTS at the minimum risk portfolio (i.e., the...
    Question: When does portfolio risk reach a global minimum? A. Marginal VaRs are equal B. Marginal VaRs = 1.0 C. Highest Sharpe ratio D. (expected return/beta) is constant Answer: A ...
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  4. Suzanne Evans

    Question 97: Component VaR

    Question: What is Jorion's recommendation to compute component VaR when the distribution is not elliptical? A. Use sample beta coefficient B. Use marginal VaR C. Uses positions linked to selected portfolio return D. You cannot (must at least be elliptical) Answer: C Explanation: The idea is to identify a portfolio return (based on sorted historical portfolio returns) that...
    Question: What is Jorion's recommendation to compute component VaR when the distribution is not elliptical? A. Use sample beta coefficient B. Use marginal VaR C. Uses positions linked to selected portfolio return D. You cannot (must at least be elliptical) Answer: C Explanation: The idea is to identify a portfolio return (based on sorted historical portfolio returns) that...
    Question: What is Jorion's recommendation to compute component VaR when the distribution is not elliptical? A. Use sample beta coefficient B. Use marginal VaR C. Uses positions linked to selected portfolio return D. You cannot (must at least be elliptical) Answer: C Explanation: The...
    Question: What is Jorion's recommendation to compute component VaR when the distribution is not elliptical? A. Use sample beta coefficient B. Use marginal VaR C. Uses positions linked to...
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  5. Suzanne Evans

    Question 96: Component VaR and percentage contribution

    Question: A $100 million portfolio has a portfolio value at risk (VaR) of $30 million. A trader has a $10 million position where the beta of the trader's return with the portfolio's return is 0.8 and the position's marginal VaR is 0.24. What is the (i) the position's component VaR and (ii) the percentage contribution of the position to portfolio VaR? A. 1.2 millon and 4.0% B. 2.4 million...
    Question: A $100 million portfolio has a portfolio value at risk (VaR) of $30 million. A trader has a $10 million position where the beta of the trader's return with the portfolio's return is 0.8 and the position's marginal VaR is 0.24. What is the (i) the position's component VaR and (ii) the percentage contribution of the position to portfolio VaR? A. 1.2 millon and 4.0% B. 2.4 million...
    Question: A $100 million portfolio has a portfolio value at risk (VaR) of $30 million. A trader has a $10 million position where the beta of the trader's return with the portfolio's return is 0.8 and the position's marginal VaR is 0.24. What is the (i) the position's component VaR and (ii) the...
    Question: A $100 million portfolio has a portfolio value at risk (VaR) of $30 million. A trader has a $10 million position where the beta of the trader's return with the portfolio's return is 0.8...
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  6. Suzanne Evans

    Question 95: Formula

    Question: If W is the portfolio value, (i) is an asset with a single risk factor, and (b) is the beta between the position's and the portfolio's returns, what is the formula for the best hedge? A. -W x [COV(i, portfolio) / variance of i] B. -W x [COV(i, portfolio) / standard deviation of i] C. -W x [variance of I / COV(i, portfolio)] D. (variance of i) x [COV(i, portfolio) / W] ...
    Question: If W is the portfolio value, (i) is an asset with a single risk factor, and (b) is the beta between the position's and the portfolio's returns, what is the formula for the best hedge? A. -W x [COV(i, portfolio) / variance of i] B. -W x [COV(i, portfolio) / standard deviation of i] C. -W x [variance of I / COV(i, portfolio)] D. (variance of i) x [COV(i, portfolio) / W] ...
    Question: If W is the portfolio value, (i) is an asset with a single risk factor, and (b) is the beta between the position's and the portfolio's returns, what is the formula for the best hedge? A. -W x [COV(i, portfolio) / variance of i] B. -W x [COV(i, portfolio) / standard deviation of i] ...
    Question: If W is the portfolio value, (i) is an asset with a single risk factor, and (b) is the beta between the position's and the portfolio's returns, what is the formula for the best hedge? ...
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  7. Suzanne Evans

    Question 94: Incremental VaR

    Question: A $20 million portfolio consists of only two equally-weighted and uncorrelated positions in Assets A & B. Asset A ($10 million) has a volatility of 10% and Asset B (also $10 million) has a volatility of 20%. At 99% confidence, what is an approximation of the incremental VaR given an additional investment of $1 million in Asset B? A. $233,000 B. $298,000 C. $333,000 D. $416,000 ...
    Question: A $20 million portfolio consists of only two equally-weighted and uncorrelated positions in Assets A & B. Asset A ($10 million) has a volatility of 10% and Asset B (also $10 million) has a volatility of 20%. At 99% confidence, what is an approximation of the incremental VaR given an additional investment of $1 million in Asset B? A. $233,000 B. $298,000 C. $333,000 D. $416,000 ...
    Question: A $20 million portfolio consists of only two equally-weighted and uncorrelated positions in Assets A & B. Asset A ($10 million) has a volatility of 10% and Asset B (also $10 million) has a volatility of 20%. At 99% confidence, what is an approximation of the incremental VaR given an...
    Question: A $20 million portfolio consists of only two equally-weighted and uncorrelated positions in Assets A & B. Asset A ($10 million) has a volatility of 10% and Asset B (also $10 million) has...
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  8. Suzanne Evans

    Question 93: Marginal VaR

    Question: Which are true statements about marginal value at risk (VaR)? I. Marginal VaR = (critical value)[Covariance between position and portfolio returns/portfolio volatility]; II. Marginal VaR is a first-order partial derivative; III. Marginal VaR = (Portfolio VaR/Portfolio size)(beta of position's return with portfolio's return); IV. Marginal VaR approximates incremental VaR for small...
    Question: Which are true statements about marginal value at risk (VaR)? I. Marginal VaR = (critical value)[Covariance between position and portfolio returns/portfolio volatility]; II. Marginal VaR is a first-order partial derivative; III. Marginal VaR = (Portfolio VaR/Portfolio size)(beta of position's return with portfolio's return); IV. Marginal VaR approximates incremental VaR for small...
    Question: Which are true statements about marginal value at risk (VaR)? I. Marginal VaR = (critical value)[Covariance between position and portfolio returns/portfolio volatility]; II. Marginal VaR is a first-order partial derivative; III. Marginal VaR = (Portfolio VaR/Portfolio size)(beta of...
    Question: Which are true statements about marginal value at risk (VaR)? I. Marginal VaR = (critical value)[Covariance between position and portfolio returns/portfolio volatility]; II. Marginal VaR...
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  9. Suzanne Evans

    Question 92: Marginal VaR and component VaR

    Question: A trader has a $10 million position in a $100 million portfolio where the beta of the trader's return with the portfolio's return is 1.5 and the portfolio value at risk (VaR) is $30 million. What is the (i) marginal VaR and (ii) component VaR? A. 0.2 and 2.0 million B. 0.2 and 2.8 million C. 0.45 and 4.5 million D. 1.2 and 2.4 million Answer: C Explanation: Marginal VaR =...
    Question: A trader has a $10 million position in a $100 million portfolio where the beta of the trader's return with the portfolio's return is 1.5 and the portfolio value at risk (VaR) is $30 million. What is the (i) marginal VaR and (ii) component VaR? A. 0.2 and 2.0 million B. 0.2 and 2.8 million C. 0.45 and 4.5 million D. 1.2 and 2.4 million Answer: C Explanation: Marginal VaR =...
    Question: A trader has a $10 million position in a $100 million portfolio where the beta of the trader's return with the portfolio's return is 1.5 and the portfolio value at risk (VaR) is $30 million. What is the (i) marginal VaR and (ii) component VaR? A. 0.2 and 2.0 million B. 0.2 and 2.8...
    Question: A trader has a $10 million position in a $100 million portfolio where the beta of the trader's return with the portfolio's return is 1.5 and the portfolio value at risk (VaR) is $30...
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  10. Suzanne Evans

    Question 91: Portfolios standard deviation

    Question: A portfolio has five (5) positions with equal weights, standard deviations and correlations between them. If the standard deviation for each is 10% and the correlation between each pair of returns is 0.5, what is the portfolio's standard deviation? A. 5.0% B. 6.25% C. 7.75% D. 10.0% Answer: C Explanation: Under these circumstances, portfolio volatility = (asset...
    Question: A portfolio has five (5) positions with equal weights, standard deviations and correlations between them. If the standard deviation for each is 10% and the correlation between each pair of returns is 0.5, what is the portfolio's standard deviation? A. 5.0% B. 6.25% C. 7.75% D. 10.0% Answer: C Explanation: Under these circumstances, portfolio volatility = (asset...
    Question: A portfolio has five (5) positions with equal weights, standard deviations and correlations between them. If the standard deviation for each is 10% and the correlation between each pair of returns is 0.5, what is the portfolio's standard deviation? A. 5.0% B. 6.25% C. 7.75% D....
    Question: A portfolio has five (5) positions with equal weights, standard deviations and correlations between them. If the standard deviation for each is 10% and the correlation between each pair...
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  11. Suzanne Evans

    Question 90: Portfolio VaR

    Question: Assume a two-asset portfolio with a portfolio value of $20 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. If the desired confidence is 99%, what is the portfolio VaR if (i) the assets are uncorrelated [i.e.., correlation = 0] and (ii) the assets are perfectly correlated [i.e., correlation = -1] A. $2.56 and...
    Question: Assume a two-asset portfolio with a portfolio value of $20 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. If the desired confidence is 99%, what is the portfolio VaR if (i) the assets are uncorrelated [i.e.., correlation = 0] and (ii) the assets are perfectly correlated [i.e., correlation = -1] A. $2.56 and...
    Question: Assume a two-asset portfolio with a portfolio value of $20 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. If the desired confidence is 99%, what is the portfolio VaR if (i) the assets are uncorrelated [i.e..,...
    Question: Assume a two-asset portfolio with a portfolio value of $20 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. If the...
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  12. Suzanne Evans

    Question 8: Strategies

    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B Explanation: Equity market neutral tries to exploit price discrepancies without exposure to the broad market...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B Explanation: Equity market neutral tries to exploit price discrepancies without exposure to the broad market...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B ...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short...
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  13. Suzanne Evans

    Question 89: VaR

    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the individual VaR of Asset B? A. $822,000 B. $1.645 million C. $2.16 million D. $2.33 million Answer: B Explanation: The individual VaR of Asset...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the individual VaR of Asset B? A. $822,000 B. $1.645 million C. $2.16 million D. $2.33 million Answer: B Explanation: The individual VaR of Asset...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the individual VaR of Asset B? A. $822,000 B. $1.645...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The...
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  14. Suzanne Evans

    Question 88: Diversified portfolio VaR

    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the diversified portfolio VaR under 95% confidence? A. $1.96 million B. $2.18 million C. $2.82 million D. $3.16 million Answer: B Explanation:...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the diversified portfolio VaR under 95% confidence? A. $1.96 million B. $2.18 million C. $2.82 million D. $3.16 million Answer: B Explanation:...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the diversified portfolio VaR under 95% confidence? A....
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The...
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  15. Suzanne Evans

    Question 87: Future strategies

    Question: Jaeger claims that most systematic managed futures strategies are: A. Trend-followers B. Mean-reversion plays C. Volatility basis D. Basis risk based Answer: A Explanation: Trend-following is the dominant trading style for systematic manager futures strategies. The manager relies on technical indicators (e.g., momentum, relative size of moving averages, or break-out...
    Question: Jaeger claims that most systematic managed futures strategies are: A. Trend-followers B. Mean-reversion plays C. Volatility basis D. Basis risk based Answer: A Explanation: Trend-following is the dominant trading style for systematic manager futures strategies. The manager relies on technical indicators (e.g., momentum, relative size of moving averages, or break-out...
    Question: Jaeger claims that most systematic managed futures strategies are: A. Trend-followers B. Mean-reversion plays C. Volatility basis D. Basis risk based Answer: A Explanation: Trend-following is the dominant trading style for systematic manager futures strategies. The manager...
    Question: Jaeger claims that most systematic managed futures strategies are: A. Trend-followers B. Mean-reversion plays C. Volatility basis D. Basis risk based Answer: A Explanation:...
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  16. Suzanne Evans

    Question 86: Model globe macro strategies

    Question: Jaeger says the key distinction between modern global macro strategies is: A. Fundamental versus technical B. Sector versus style C. Directional versus market-neutral D. Discretionary versus systematic Answer: D Explanation: Discretionary managers employ various "opportunistic" strategies (style drift is built-in); Systematic managers use well-defined trading models
    Question: Jaeger says the key distinction between modern global macro strategies is: A. Fundamental versus technical B. Sector versus style C. Directional versus market-neutral D. Discretionary versus systematic Answer: D Explanation: Discretionary managers employ various "opportunistic" strategies (style drift is built-in); Systematic managers use well-defined trading models
    Question: Jaeger says the key distinction between modern global macro strategies is: A. Fundamental versus technical B. Sector versus style C. Directional versus market-neutral D. Discretionary versus systematic Answer: D Explanation: Discretionary managers employ various...
    Question: Jaeger says the key distinction between modern global macro strategies is: A. Fundamental versus technical B. Sector versus style C. Directional versus market-neutral D....
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  17. Suzanne Evans

    Question 85: Risks

    Question: A manager who employs a "Regulation D" strategy is exposed primarily to which risks: A. Credit and liquidity B. Liquidity and regulatory C. Regulatory and Market D. Market and operational Answer: A Explanation: Regulation D managers tend to invest in small companies with limited means to raise capital. The investment is illiquid before registration and limited in...
    Question: A manager who employs a "Regulation D" strategy is exposed primarily to which risks: A. Credit and liquidity B. Liquidity and regulatory C. Regulatory and Market D. Market and operational Answer: A Explanation: Regulation D managers tend to invest in small companies with limited means to raise capital. The investment is illiquid before registration and limited in...
    Question: A manager who employs a "Regulation D" strategy is exposed primarily to which risks: A. Credit and liquidity B. Liquidity and regulatory C. Regulatory and Market D. Market and operational Answer: A Explanation: Regulation D managers tend to invest in small companies with...
    Question: A manager who employs a "Regulation D" strategy is exposed primarily to which risks: A. Credit and liquidity B. Liquidity and regulatory C. Regulatory and Market D. Market and...
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  18. Suzanne Evans

    Question 84: Distressed securities strategy

    Question: Challenges of employing a distressed securities strategy include all of the following except: A. Less liquidity B. Unfavorable image as "vultures" C. Require much expertise and extensive analysis D. Legal issues Answer: B Explanation: Distressed securities tend to be less liquid; require specialist expertise with much analytical pre-work involved; tend to be confronted...
    Question: Challenges of employing a distressed securities strategy include all of the following except: A. Less liquidity B. Unfavorable image as "vultures" C. Require much expertise and extensive analysis D. Legal issues Answer: B Explanation: Distressed securities tend to be less liquid; require specialist expertise with much analytical pre-work involved; tend to be confronted...
    Question: Challenges of employing a distressed securities strategy include all of the following except: A. Less liquidity B. Unfavorable image as "vultures" C. Require much expertise and extensive analysis D. Legal issues Answer: B Explanation: Distressed securities tend to be less...
    Question: Challenges of employing a distressed securities strategy include all of the following except: A. Less liquidity B. Unfavorable image as "vultures" C. Require much expertise and...
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  19. Suzanne Evans

    Question 83: Key exposure

    Question: What is the key exposure (risk factor) in merger arbitrage? A. Deal risk premium B. Regulatory risk premium C. Model risk D. Spread risk Answer: A Explanation: The "deal risk premium" subsumes most of the other risks; "deal risk" includes everything that affects the deal's completion or its timing.
    Question: What is the key exposure (risk factor) in merger arbitrage? A. Deal risk premium B. Regulatory risk premium C. Model risk D. Spread risk Answer: A Explanation: The "deal risk premium" subsumes most of the other risks; "deal risk" includes everything that affects the deal's completion or its timing.
    Question: What is the key exposure (risk factor) in merger arbitrage? A. Deal risk premium B. Regulatory risk premium C. Model risk D. Spread risk Answer: A Explanation: The "deal risk premium" subsumes most of the other risks; "deal risk" includes everything that affects the deal's...
    Question: What is the key exposure (risk factor) in merger arbitrage? A. Deal risk premium B. Regulatory risk premium C. Model risk D. Spread risk Answer: A Explanation: The "deal risk...
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  20. Suzanne Evans

    Question 82: Risk in the CAPM

    Question: If the capital asset pricing model (CAPM) were applied against a portfolio that employed an event-driven strategy, which risk in the CAPM would correspond to the manager's focus area: A. Equity premium B. Beta C. Idiosyncratic risk D. Quantity of risk Answer: C Explanation: Event-driven strategies are company-specific or idiosyncratic. Theoretically, as idiosyncratic...
    Question: If the capital asset pricing model (CAPM) were applied against a portfolio that employed an event-driven strategy, which risk in the CAPM would correspond to the manager's focus area: A. Equity premium B. Beta C. Idiosyncratic risk D. Quantity of risk Answer: C Explanation: Event-driven strategies are company-specific or idiosyncratic. Theoretically, as idiosyncratic...
    Question: If the capital asset pricing model (CAPM) were applied against a portfolio that employed an event-driven strategy, which risk in the CAPM would correspond to the manager's focus area: A. Equity premium B. Beta C. Idiosyncratic risk D. Quantity of risk Answer: C Explanation:...
    Question: If the capital asset pricing model (CAPM) were applied against a portfolio that employed an event-driven strategy, which risk in the CAPM would correspond to the manager's focus area: ...
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  21. Suzanne Evans

    Question 81: Capital structure arbitrage

    T.Flockhert: Agreed, supposed to be (A). Thank for the noting the error. Fixed - David
    T.Flockhert: Agreed, supposed to be (A). Thank for the noting the error. Fixed - David
    T.Flockhert: Agreed, supposed to be (A). Thank for the noting the error. Fixed - David
    T.Flockhert: Agreed, supposed to be (A). Thank for the noting the error. Fixed - David
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  22. Suzanne Evans

    Question 80: Key metric

    Question: Which key metric enables a volatility arbitrageur to determine that volatility is "cheap" or "expensive?" A. Historical volatility patterns B. Recent change in volatility C. Implied volatility D. It is not model determined; "implied" means subjective Answer: C Explanation: The market price of the instrument "implies" a volatility (such that the volatility produces a model...
    Question: Which key metric enables a volatility arbitrageur to determine that volatility is "cheap" or "expensive?" A. Historical volatility patterns B. Recent change in volatility C. Implied volatility D. It is not model determined; "implied" means subjective Answer: C Explanation: The market price of the instrument "implies" a volatility (such that the volatility produces a model...
    Question: Which key metric enables a volatility arbitrageur to determine that volatility is "cheap" or "expensive?" A. Historical volatility patterns B. Recent change in volatility C. Implied volatility D. It is not model determined; "implied" means subjective Answer: C Explanation:...
    Question: Which key metric enables a volatility arbitrageur to determine that volatility is "cheap" or "expensive?" A. Historical volatility patterns B. Recent change in volatility C. Implied...
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  23. Suzanne Evans

    Question 7: Short selling

    Question: According to Jaeger, which is not a purpose of short selling: A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting.
    Question: According to Jaeger, which is not a purpose of short selling: A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting.
    Question: According to Jaeger, which is not a purpose of short selling: A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting.
    Question: According to Jaeger, which is not a purpose of short selling: A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes...
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  24. Suzanne Evans

    Question 79: Pricing inefficiencies

    Question: Fixed income markets display various pricing inefficiencies due to all of the following EXCEPT: A. Agency biases B. Structural reasons C. Market segmentation D. Lack of an equity risk premium Answer: D Explanation: Exploitable fixed-income inefficiencies: (1) Agency biases: fiduciaries purchase yesterday's winners; (2) Structural: tax, accounting, or regulatory; (3)...
    Question: Fixed income markets display various pricing inefficiencies due to all of the following EXCEPT: A. Agency biases B. Structural reasons C. Market segmentation D. Lack of an equity risk premium Answer: D Explanation: Exploitable fixed-income inefficiencies: (1) Agency biases: fiduciaries purchase yesterday's winners; (2) Structural: tax, accounting, or regulatory; (3)...
    Question: Fixed income markets display various pricing inefficiencies due to all of the following EXCEPT: A. Agency biases B. Structural reasons C. Market segmentation D. Lack of an equity risk premium Answer: D Explanation: Exploitable fixed-income inefficiencies: (1) Agency biases:...
    Question: Fixed income markets display various pricing inefficiencies due to all of the following EXCEPT: A. Agency biases B. Structural reasons C. Market segmentation D. Lack of an equity...
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    9
  25. Suzanne Evans

    Question 78: Static return

    Question: An example of a static return is: A. A higher bond coupon B. An arbitrage opportunity between a "cheap" convertible and "expensive" stock C. A gamma trade on volatility D. A mispricing Answer: A Explanation: Static returns are one of the three sources of return for a convertible arbitrage strategy (1. static returns, 2. gamma trading on stock volatility, 3. price...
    Question: An example of a static return is: A. A higher bond coupon B. An arbitrage opportunity between a "cheap" convertible and "expensive" stock C. A gamma trade on volatility D. A mispricing Answer: A Explanation: Static returns are one of the three sources of return for a convertible arbitrage strategy (1. static returns, 2. gamma trading on stock volatility, 3. price...
    Question: An example of a static return is: A. A higher bond coupon B. An arbitrage opportunity between a "cheap" convertible and "expensive" stock C. A gamma trade on volatility D. A mispricing Answer: A Explanation: Static returns are one of the three sources of return for a...
    Question: An example of a static return is: A. A higher bond coupon B. An arbitrage opportunity between a "cheap" convertible and "expensive" stock C. A gamma trade on volatility D. A...
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    7
  26. Suzanne Evans

    Question 77: Convertible strategies

    Question: Managers pursuing convertible strategies earn returns from all of the following EXCEPT: A. The conversion feature on the bond B. Static returns from coupon income and short stock rebates C. Gamma trading D. Exploiting price inefficiencies Answer: A Explanation: The conversion feature is not itself a source of return.
    Question: Managers pursuing convertible strategies earn returns from all of the following EXCEPT: A. The conversion feature on the bond B. Static returns from coupon income and short stock rebates C. Gamma trading D. Exploiting price inefficiencies Answer: A Explanation: The conversion feature is not itself a source of return.
    Question: Managers pursuing convertible strategies earn returns from all of the following EXCEPT: A. The conversion feature on the bond B. Static returns from coupon income and short stock rebates C. Gamma trading D. Exploiting price inefficiencies Answer: A Explanation: The...
    Question: Managers pursuing convertible strategies earn returns from all of the following EXCEPT: A. The conversion feature on the bond B. Static returns from coupon income and short stock...
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    0
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    10
  27. Suzanne Evans

    Question 76:Short-selling strategies

    Question: According to Jaeger, short-selling strategies involve additional issues (i.e., above long only strategies) that primarily relate to: A. Uncapped loss potential B. Challenging investor psychology C. Twice the opportunity (long + short) D. The process of borrowing stocks Answer: D Explanation: The problems that relate to borrowing include: share availability, stability of...
    Question: According to Jaeger, short-selling strategies involve additional issues (i.e., above long only strategies) that primarily relate to: A. Uncapped loss potential B. Challenging investor psychology C. Twice the opportunity (long + short) D. The process of borrowing stocks Answer: D Explanation: The problems that relate to borrowing include: share availability, stability of...
    Question: According to Jaeger, short-selling strategies involve additional issues (i.e., above long only strategies) that primarily relate to: A. Uncapped loss potential B. Challenging investor psychology C. Twice the opportunity (long + short) D. The process of borrowing stocks Answer:...
    Question: According to Jaeger, short-selling strategies involve additional issues (i.e., above long only strategies) that primarily relate to: A. Uncapped loss potential B. Challenging...
    Replies:
    0
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    8
  28. Suzanne Evans

    Question 75: Market timing strategies

    Question: Which are the two main types of market timing strategies: A. Sector and time zone arbitrage B. Currency and sector C. Interest rate and industry D. Exchanges (NYSE vs. NASDAQ) and time zone Answer: A Explanation: Sector timing aims to profit from micro upward trends in single industry sectors; time zone arbitrage exploits pricing inefficiencies based on "conditional price...
    Question: Which are the two main types of market timing strategies: A. Sector and time zone arbitrage B. Currency and sector C. Interest rate and industry D. Exchanges (NYSE vs. NASDAQ) and time zone Answer: A Explanation: Sector timing aims to profit from micro upward trends in single industry sectors; time zone arbitrage exploits pricing inefficiencies based on "conditional price...
    Question: Which are the two main types of market timing strategies: A. Sector and time zone arbitrage B. Currency and sector C. Interest rate and industry D. Exchanges (NYSE vs. NASDAQ) and time zone Answer: A Explanation: Sector timing aims to profit from micro upward trends in...
    Question: Which are the two main types of market timing strategies: A. Sector and time zone arbitrage B. Currency and sector C. Interest rate and industry D. Exchanges (NYSE vs. NASDAQ) and...
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    8
  29. Suzanne Evans

    Question 74: Fama-French factor

    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low liquidity factors Answer: D Explanation: While liquidity may indeed by a factor, the...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low liquidity factors Answer: D Explanation: While liquidity may indeed by a factor, the...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? ...
    Replies:
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    Views:
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  30. Suzanne Evans

    Question 73: Short positions

    Question: According to Jaeger, short positions (short selling) has three purposes. Which of the following is not one of them? A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting. The long/short equity manager does not hug...
    Question: According to Jaeger, short positions (short selling) has three purposes. Which of the following is not one of them? A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting. The long/short equity manager does not hug...
    Question: According to Jaeger, short positions (short selling) has three purposes. Which of the following is not one of them? A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation:...
    Question: According to Jaeger, short positions (short selling) has three purposes. Which of the following is not one of them? A. Generating positive returns B. Hedging market risk C. Earning...
    Replies:
    0
    Views:
    6

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