AWMA Exam Questions & Answers 100%
Correct!!
Capital Market Line - ANSWER-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
Jenson Performance index - ANSWER-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
How are Treynor and Sharpe indexes best used? - ANSWER-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
Benefits of Buy and hold - ANSWER-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
Property' value - ANSWER-NOI/Cap Rate
Typical hedge fund fees - ANSWER-annual management fee (typically around 2%), most have
incentive (performance) fee between 10 and 20% of the funds profits. The term "2 and 20" would
refer to a 2% management fee and 20% profits going to hedge fund manager. there can be a hurdle
rate that the fund manager must surpass in order to earn a performance fee. also can be a surrender
fee when the fund is sold.
Major risk in hedge funds - ANSWER-illiquidity, manager risk, investment strategy risk,
headline/regulatory risk, and the risk that there may be adverse tax consequences
Market directional - ANSWER-includes equity long/short, short-selling, and activist
corporate restructuring - ANSWER-includes distressed securities, merger arbitrage, event driven, and
regulation D offerings
Correct!!
Capital Market Line - ANSWER-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
Jenson Performance index - ANSWER-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
How are Treynor and Sharpe indexes best used? - ANSWER-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
Benefits of Buy and hold - ANSWER-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
Property' value - ANSWER-NOI/Cap Rate
Typical hedge fund fees - ANSWER-annual management fee (typically around 2%), most have
incentive (performance) fee between 10 and 20% of the funds profits. The term "2 and 20" would
refer to a 2% management fee and 20% profits going to hedge fund manager. there can be a hurdle
rate that the fund manager must surpass in order to earn a performance fee. also can be a surrender
fee when the fund is sold.
Major risk in hedge funds - ANSWER-illiquidity, manager risk, investment strategy risk,
headline/regulatory risk, and the risk that there may be adverse tax consequences
Market directional - ANSWER-includes equity long/short, short-selling, and activist
corporate restructuring - ANSWER-includes distressed securities, merger arbitrage, event driven, and
regulation D offerings
