Alternative Investments - Alternative Investments Section 1
6. Which of the following is least likely to be considered an alternative investment?
- Option : C
- Explanation : Long-only stock funds are typically considered traditional investments and hedge funds and real estate are typically classified as alternative investments
7. Which of the following is most likely to be correct about return?
- A
Beta, a measure of sensitivity, relative to a particular market index, is a the measure of unsystematic risk.
- B
Owing to existing inefficiencies, a positive return can be earned through exploitation and after adjustment of beta risk. This is defined as an alpha return.
- C
Alpha returns are correlated with beta returns and are presumably the result of managers’ special skills in capturing non-systematic opportunities.
- Option : B
- Explanation : A is incorrect because beta is a measure of systematic risk. C is incorrect because alpha returns are not correlated with beta returns.
- Option : C
- Explanation : A key motivation for investing in alternative investments is their diversifying potential when combined with a traditional portfolio.
9. Which of the following is least likely to be based on realized profits for a funds’ structure?
- Option : B
- Explanation : The management fee, also called the base fee, is based on assets under management.
10. Which of the following is least likely to be a characteristic of a hedge fund?
- Option : C
- Explanation : Hedge funds are set up as a private investment open to a limited number of investors willing and able to make a large initial investment.
