2011 CFA Program Curriculum: Level 2, Volume 5

CFA Institute

Chapter 52 BUYERS BEWARE: EVALUATING AND MANAGING THE MANY FACETS OF THE RISKS OF HEDGE FUNDS - all with Video Answers

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Chapter Questions

Problem 1

Lee's mast likely response to Morton's question about Noble Fund switching investment strategy is:
A. a change in the sector concentrations of the holdings.
B. the use of derivatives for both long and short positions.
C. an increase in portfolio turnover during periods of market instability.

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Problem 2

Is Lee's statement about the risk of the Noble Fund correct?
A. Yés.
B. No, because VaR's confidence level estimate is best suited to forecast future results.
C. No, because standard deviation of returns measures the volatility of downside performance.

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Problem 3

The most appropriate benchmark in Exhibit 2 for comparing Noble's performance would be:
A. The $S \& P 500$.
B. The Russell 3000.
c. The CSFB/Tremont Hedge Fund Index.

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Problem 4

Which of the following does not support Lee's argument for using the risk. free rate as a performance benchmark? Noble's:
A. strategy is market neutral.
B. portfolio beta can shift over time.
C. portfolio holdings are concentrated.

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Problem 5

The key portfolio manager's most appropriate response to Morton's question is that long/short strategies have:
A. more leverage.
B. greater volatility.
C. a higher $P / \mathrm{E}$ ratio.

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Problem 6

Based on all aspects of Morton's evaluation of the Noble Fund, which is most consistent with a best-practices risk management system?
A. Assess worst possible losses.
B. Continue to know your manager.
C. Detect significant digressions from stated strategies.

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