Alt. Investments ....trap? Of course!

another one of my not-so-favourite topics…I think there are too many of those this year in my list! hahah… Patsy Cain works in the alternative investment division for a global investment bank. This morning she received a questionnaire from Michael Garland, a computer-industry executive looking for someone to handle a portion of his investment portfolio. Cain had sent him the questionnaire a week ago in an effort to determine whether he was a good candidate for money management. When asked about his investment experience, Garland responded that he has been actively investing in a variety of asset classes for more than 30 years, with considerable success overall. Tax issues are a concern, as Garland receives a large amount of dividend income from the company he owns and he also operates several charitable foundations funded by both himself as well as outside donors. Garland also wrote that he does not like gambling or tobacco companies and can afford to tie up his money for no more than five years because he intends to retire at that time. After Cain returns the questionnaire, Garland calls for an appointment. When he meets with Cain, he explains that another manager has done a fine job with his stocks and bonds, but he is not happy with the performance of his alternative investments and wants her to manage them. Cain still is not sure what kind of investments would be best for Garland, so she asks him to rank his investment goals in order of importance. They are: Returns. Diversification. Ease of tracking. Garland is very interested in commodities. He owns a chemical company that makes food additives and flavorings, and he uses a lot of corn and other grains in his products. Rather than buy grains at market prices, Garland would like to purchase quantities of grain for his own use, store it in his own warehouse, and sell any excess. Alternatively, he could use futures contracts to guarantee prices for purchases at a future date. Cain decides that Garland is a likely candidate for commodity investments. When she suggests futures to him, Garland explains that he got burned on a natural-gas investment once and is nervous about commodities because of their price volatility. Cain advises him to stick with oil futures rather than natural-gas futures, offering four reasons for the advice: “Oil prices are similar worldwide, while natural-gas prices differ by region.” “Seasonal trends in oil prices are well documented.” “Forward prices for oil tend to be less volatile than prices for natural gas.” “Oil is easier to transport than natural gas.” Garland is also interested in hedge funds, though he is concerned about their potential volatility. Cain makes a mental note to assemble a list of hedge funds with high Sharpe ratios. Hedge funds appeal to Garland mostly because of their willingness to take both long and short positions. He postulates that a hedge fund that takes only long positions might as well be a mutual fund. Which of the following statements about oil and natural-gas futures is least accurate? A) “Seasonal trends in oil prices are well documented.” B) “Forward prices for oil tend to be less volatile than prices for natural gas.” C) “Oil prices are similar worldwide, while natural-gas prices differ by region.” -------------------------------------------------------------------------------- Based only on Garland’s three stated investment goals, his best option is: A) oil futures. B) publicly traded real-estate infrastructure equity units. C) a market-neutral hedge fund. -------------------------------------------------------------------------------- In selecting hedge funds for Garland, Cain should avoid: A) emerging-market funds. B) hedged-equity funds. C) merger-arbitrage funds. -------------------------------------------------------------------------------- With regards to measuring the volatility of hedge funds, which of the following is least likely to be a limitation of the Sharpe ratio? A) funds with large private-equity positions will appear less volatile than they actually are. B) it is not effective for selecting good hedge-fund investments. C) its time-dependency makes volatility appear higher over long periods. -------------------------------------------------------------------------------- Based on Garland’s response to the questionnaire, the issue most likely to cause Cain NOT to take him on as a client is: A) suitability. B) tax complexities. C) decision risk. -------------------------------------------------------------------------------- Regarding Garland’s plan to purchase grain for his company’s use, Cain should begin by advising him about: A) lease rates. B) convenience yield. C) storage costs.

Wow, this is a total shot in the dark, I’m prepared to go 33% on this one. BBCBBC


B - Believe oil prices are more volatile than natural gas prices B - He is afraid of commodities and hedge funds might have investments in tobacco and gambling firms B - hedged equity funds may have investments in tobacco and gambling firms. Not very sure. C - first 2 seem to be limitations C - he is not very sure of his decisions C - he had mentioned that he will store the grains and corns

this one’s tough. looking at a possible 0/6 here BBABCA

highest score so far … 3/6

haha…def. not me

Thats sad…am tensed…

Post 'em Mumu


My guess is there are at least 2 with highest scores, I tried playing with the answers given by us and the supposedly actual answers given highest score of 3/6.

Black Swan Wrote: ------------------------------------------------------- > Post 'em Mumu second that



we have a brand new score boys and girls!! 5/6 - only one person 4/5 - only one person 3/6 - bunch of you hahah…just got done with dinner…mmmmm

more than the questions the trap is mumu teasing us on the answers :))

it’s almost midnight…if i were to go to bed withouth posting the answers…how much would you all hate me? muhahah

Let me guess… The answers till now are as follows… bbbbbab bbbbbbb cababaa bbcbccb baccaac cbcabbb The one with 5 correct and 4 correct is one of the last three…I have realized that the answer to last question should be B (had done in a hurry). The one with 4 and 5 correct are either or corrupted respectively. I did some combinations. So its corrupted with 5 correct and with 4 correct. The answers are. A B A C C B Am I correct mumu?

lol mumu i think u can go to bed :wink:

One of those should be wrong because thsoe are just corrupted’s answers