Certified Hedge Fund Professional (Chp)
Exam Question And Correct Answers
(Verified Answers) Plus Rationales 2026
Q&A Instant Download Pdf
1. A hedge fund structure that allows profits and losses to pass directly to
investors for tax purposes is
A. Corporation
B. Trust
C. Limited partnership
D. Closed-end fund
Rationale: Limited partnerships are pass-through entities commonly used
by hedge funds to avoid double taxation.
2. The general partner of a hedge fund is primarily responsible for
A. Providing most of the capital
B. Managing investments and operations
C. Auditing financial statements
D. Custody of assets
Rationale: The general partner manages the fund and makes all
investment decisions.
3. “2 and 20” refers to
A. Lock-up and redemption periods
B. Benchmark and hurdle rate
C. Management fee and performance fee
D. Gross and net returns
Rationale: Hedge funds typically charge ~2% management and ~20%
incentive fees.
,4. A hurdle rate is best described as
A. Maximum drawdown limit
B. Minimum return before incentive fees apply
C. Redemption penalty
D. Risk-free rate
Rationale: Performance fees are earned only after exceeding the hurdle
rate.
5. High-water mark provisions ensure that
A. Managers are paid quarterly
B. Losses are socialized
C. Incentive fees are paid only after prior losses are recovered
D. Fees are capped
Rationale: Investors are protected from paying performance fees twice on
the same gains.
6. A long/short equity hedge fund primarily seeks to
A. Eliminate all market risk
B. Profit from both rising and falling stocks
C. Track an index
D. Arbitrage interest rates
Rationale: Long positions benefit from price increases; short positions
from declines.
7. Net exposure is calculated as
A. Long positions minus cash
B. Long exposure minus short exposure
C. Gross exposure minus leverage
D. Short exposure divided by long exposure
Rationale: Net exposure reflects directional market risk.
8. Gross exposure equals
A. Net exposure plus leverage
B. Sum of long and short exposures
C. Assets under management
, D. Equity capital
Rationale: Gross exposure measures total market activity regardless of
direction.
9. Market-neutral strategies aim to
A. Maximize beta
B. Eliminate systematic market risk
C. Hold only cash
D. Track the S&P 500
Rationale: Market-neutral funds balance longs and shorts to reduce beta.
10.Event-driven strategies focus on
A. Macroeconomic cycles
B. Corporate events such as mergers or restructurings
C. High-frequency trading
D. Currency carry trades
Rationale: Event-driven funds exploit price inefficiencies around corporate
events.
11.Merger arbitrage profits mainly depend on
A. Interest rate movements
B. Deal completion probability and spread
C. Market momentum
D. Commodity prices
Rationale: Returns depend on whether the transaction closes as expected.
12.Distressed debt investing involves
A. Buying government bonds
B. Investing in securities of financially troubled companies
C. Trading currencies
D. Short selling equities
Rationale: Distressed investors target companies near bankruptcy or
restructuring.
Exam Question And Correct Answers
(Verified Answers) Plus Rationales 2026
Q&A Instant Download Pdf
1. A hedge fund structure that allows profits and losses to pass directly to
investors for tax purposes is
A. Corporation
B. Trust
C. Limited partnership
D. Closed-end fund
Rationale: Limited partnerships are pass-through entities commonly used
by hedge funds to avoid double taxation.
2. The general partner of a hedge fund is primarily responsible for
A. Providing most of the capital
B. Managing investments and operations
C. Auditing financial statements
D. Custody of assets
Rationale: The general partner manages the fund and makes all
investment decisions.
3. “2 and 20” refers to
A. Lock-up and redemption periods
B. Benchmark and hurdle rate
C. Management fee and performance fee
D. Gross and net returns
Rationale: Hedge funds typically charge ~2% management and ~20%
incentive fees.
,4. A hurdle rate is best described as
A. Maximum drawdown limit
B. Minimum return before incentive fees apply
C. Redemption penalty
D. Risk-free rate
Rationale: Performance fees are earned only after exceeding the hurdle
rate.
5. High-water mark provisions ensure that
A. Managers are paid quarterly
B. Losses are socialized
C. Incentive fees are paid only after prior losses are recovered
D. Fees are capped
Rationale: Investors are protected from paying performance fees twice on
the same gains.
6. A long/short equity hedge fund primarily seeks to
A. Eliminate all market risk
B. Profit from both rising and falling stocks
C. Track an index
D. Arbitrage interest rates
Rationale: Long positions benefit from price increases; short positions
from declines.
7. Net exposure is calculated as
A. Long positions minus cash
B. Long exposure minus short exposure
C. Gross exposure minus leverage
D. Short exposure divided by long exposure
Rationale: Net exposure reflects directional market risk.
8. Gross exposure equals
A. Net exposure plus leverage
B. Sum of long and short exposures
C. Assets under management
, D. Equity capital
Rationale: Gross exposure measures total market activity regardless of
direction.
9. Market-neutral strategies aim to
A. Maximize beta
B. Eliminate systematic market risk
C. Hold only cash
D. Track the S&P 500
Rationale: Market-neutral funds balance longs and shorts to reduce beta.
10.Event-driven strategies focus on
A. Macroeconomic cycles
B. Corporate events such as mergers or restructurings
C. High-frequency trading
D. Currency carry trades
Rationale: Event-driven funds exploit price inefficiencies around corporate
events.
11.Merger arbitrage profits mainly depend on
A. Interest rate movements
B. Deal completion probability and spread
C. Market momentum
D. Commodity prices
Rationale: Returns depend on whether the transaction closes as expected.
12.Distressed debt investing involves
A. Buying government bonds
B. Investing in securities of financially troubled companies
C. Trading currencies
D. Short selling equities
Rationale: Distressed investors target companies near bankruptcy or
restructuring.
