Questions from General Investment

Q: Suppose a hedge fund follows the following strategy: Each month it

Suppose a hedge fund follows the following strategy: Each month it holds $100 million of an S&P 500 Index fund and writes one-month out-ofthe-money put options on $100 million of the index with exerci...

Q: The following is part of the computer output from a regression of

The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 Index. A hedge fund manager believes that Waterworks is underpriced, with...

Q: a. Suppose you hold an equally weighted portfolio of 100 stocks

a. Suppose you hold an equally weighted portfolio of 100 stocks with the same alpha, beta, and residual standard deviation as Waterworks. Assume the residual returns (the e terms in Equations 20.1 and...

Q: Return to Problem 16. Now suppose that the manager misestimates the

Return to Problem 16. Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be 0.50 instead of 0.75. The standard deviation of the monthly market rate of return is 5%...

Q: Here are data on three hedge funds. Each fund charges its

Here are data on three hedge funds. Each fund charges its investors an incentive fee of 20% of total returns. Suppose initially that a fund of funds (FF) manager buys equal amounts of each of these fu...

Q: A fund manages a $4.5 billion equity portfolio with

A fund manages a $4.5 billion equity portfolio with a beta of 0.6. If the S&P contract multiplier is $50 and the index is currently at 3,000, how many contracts should the fund sell to make its overal...

Q: A hedge fund charges an incentive fee of 20% of any

A hedge fund charges an incentive fee of 20% of any investment returns above the T-bill rate, which currently is 2% but is subject to a high water mark. In the first year, the fund suffers a loss of 8...

Q: Which of the following is most accurate in describing the problems of

Which of the following is most accurate in describing the problems of survivorship bias and backfill bias in the performance evaluation of hedge funds? a. Survivorship bias and backfill bias both resu...

Q: Shaar (from the previous problem) has revised slightly her estimated

Shaar (from the previous problem) has revised slightly her estimated earnings growth rate for Rio National and, using normalized (underlying trend) EPS, which is adjusted for temporary impacts on earn...

Q: Which of the following would be the most appropriate benchmark to use

Which of the following would be the most appropriate benchmark to use for hedge fund evaluation? a. A multifactor model. b. The S&P 500. c. The risk-free rate.