AWMA
Capital Market Line - correct 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 - correct 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? - correct 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 - correct 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 - correct answer ✔✔NOI/Cap Rate
Typical hedge fund fees - correct 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 - correct answer ✔✔illiquidity, manager risk, investment strategy risk,
headline/regulatory risk, and the risk that there may be adverse tax consequences
Market directional - correct answer ✔✔includes equity long/short, short-selling, and activist
Capital Market Line - correct 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 - correct 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? - correct 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 - correct 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 - correct answer ✔✔NOI/Cap Rate
Typical hedge fund fees - correct 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 - correct answer ✔✔illiquidity, manager risk, investment strategy risk,
headline/regulatory risk, and the risk that there may be adverse tax consequences
Market directional - correct answer ✔✔includes equity long/short, short-selling, and activist
