AWMA questions with verified answers
Benefits of Buy and hold Ans✓✓✓ returns at least as good as
strategies based on technical analysis, low transactional costs, the
deferral of capital gains taxes on profits, not missing the best days of
the market
Capital Market Line Ans✓✓✓ A graphical representation of the
relationship between risk and return, where risk is measured by
standard deviation; the CML includes the concept of a risk-free rate of
return
convergence trading Ans✓✓✓ includes fixed-income arbitrage,
convertible bond arbitrage, equity market-neutral, and relative value
arbitrage
corporate restructuring Ans✓✓✓ includes distressed securities,
merger arbitrage, event driven, and regulation D offerings
distressed debt Ans✓✓✓ investing in the debt of companies that are in
trouble or failing. performance is tied to the individual circumstances
on the company itself.
Framing Ans✓✓✓ Framing is the notion that it matters how a concept
is presented to an individual. For example, assume a meal at a
restaurant normally is priced at $10. The
, restaurant might offer an "early bird special" where that price is $8
before 6 p.m., and thereby get more business if people think they are
getting a discount. Now assume, instead, the price of the meal is $8 but
after 6 p.m. there is a $2 surcharge
How are Treynor and Sharpe indexes best used? Ans✓✓✓ Both are
used to compare the risk - adjusted returns on diff funds. The higher
the risk-adjusted return, the better. The key diff is that Treynor uses
Beta as its risk measure, so Treynor can only be used with fully
diversified portfolios. Sharpe, uses Standard deviation (total risk) as its
measure of risk so can only be used with either fully diversified or
nondiversified portfolios
Jenson Performance index Ans✓✓✓ Used in comparing performance
money managers on a risk-adjusted basis and can be used by itself. A
number above 0.00 indicates the manager had better performance
than would be expected given the risk he took... vice versa
Leveraged Buyouts (LBOs) Ans✓✓✓ to take a company private in order
to repackage and restructure the company and then return the
company to the public market at a higher price through and IPO. Or - to
break up the company into several parts and sell off the diff parts of the
business to different bidders (cut and run)
Major risk in hedge funds Ans✓✓✓ illiquidity, manager risk,
investment strategy risk, headline/regulatory risk, and the risk that
there may be adverse tax consequences
Benefits of Buy and hold Ans✓✓✓ returns at least as good as
strategies based on technical analysis, low transactional costs, the
deferral of capital gains taxes on profits, not missing the best days of
the market
Capital Market Line Ans✓✓✓ A graphical representation of the
relationship between risk and return, where risk is measured by
standard deviation; the CML includes the concept of a risk-free rate of
return
convergence trading Ans✓✓✓ includes fixed-income arbitrage,
convertible bond arbitrage, equity market-neutral, and relative value
arbitrage
corporate restructuring Ans✓✓✓ includes distressed securities,
merger arbitrage, event driven, and regulation D offerings
distressed debt Ans✓✓✓ investing in the debt of companies that are in
trouble or failing. performance is tied to the individual circumstances
on the company itself.
Framing Ans✓✓✓ Framing is the notion that it matters how a concept
is presented to an individual. For example, assume a meal at a
restaurant normally is priced at $10. The
, restaurant might offer an "early bird special" where that price is $8
before 6 p.m., and thereby get more business if people think they are
getting a discount. Now assume, instead, the price of the meal is $8 but
after 6 p.m. there is a $2 surcharge
How are Treynor and Sharpe indexes best used? Ans✓✓✓ Both are
used to compare the risk - adjusted returns on diff funds. The higher
the risk-adjusted return, the better. The key diff is that Treynor uses
Beta as its risk measure, so Treynor can only be used with fully
diversified portfolios. Sharpe, uses Standard deviation (total risk) as its
measure of risk so can only be used with either fully diversified or
nondiversified portfolios
Jenson Performance index Ans✓✓✓ Used in comparing performance
money managers on a risk-adjusted basis and can be used by itself. A
number above 0.00 indicates the manager had better performance
than would be expected given the risk he took... vice versa
Leveraged Buyouts (LBOs) Ans✓✓✓ to take a company private in order
to repackage and restructure the company and then return the
company to the public market at a higher price through and IPO. Or - to
break up the company into several parts and sell off the diff parts of the
business to different bidders (cut and run)
Major risk in hedge funds Ans✓✓✓ illiquidity, manager risk,
investment strategy risk, headline/regulatory risk, and the risk that
there may be adverse tax consequences
