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Fund Hedge Fund Quiz

Which of the following statements is true regarding hedge funds?

A hedge fund buys shares in Abbott Laboratories, betting that it will be acquired at a premium by Baxter International. This is an example of a _____ strategy.

Which of the following statement is correct regarding statistical arbitrage?

The S&P contract multiplier is $250 and the S&P index is currently at 1,000. A fund manages a $1.3 billion equity portfolio with a beta of .6, how many contracts should the fund sell to make its overall position market neutral?

The following are the details of monthly returns on Golf club stock against the S&P 500 Index. A hedge fund manager believes that Golf club is underpriced, with an alpha of 3% over the coming month. The value of beta is 0.6, r-square is 0.65, and standard deviation of residuals is 0.06 monthly. The S&P 500 currently is at 1,000 and the contract multiplier is $250. What is the standard deviation of the monthly return of the hedged portfolio?

The following is data provided on two hedge funds: Hedge Fund 1 and Hedge Fund 2. Both funds charge their investors an incentive fee of 20% of total returns. Suppose initially that a fund of funds manager buys equal amounts of each of these funds and charges its investors a 15% incentive fee. Assume that management fees other than incentive fees are zero for all funds. Hedge Fund 1 and Hedge Fund 2 have $200 million as start of year value. Gross portfolio rate of return for Hedge Fund 1 is 30% a

______ is the hedge fund style which involves long and short positions in capital or derivative markets across the world.

______ refer(s) to bets on particular mispricing across two or more securities, with extraneous sources of risk such as general market exposure hedged away.

Which of the following is an example of directional strategy?

Which bias arises when unsuccessful funds that cease operation stop reporting returns and leave a database, leaving behind only the successful funds?

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