Alternative Investments (3%)

Question 1

Contango

Answer 1

Futures Prices > Spot Prices

Low Convenience Yield

Negative Roll Yield

Question 2

Futures Prices > Spot Prices

Low Convenience Yield

​Negative Roll Yield

Answer 2

Contango

Question 3

Backwardation

Answer 3

Futures Prices < Spot Prices

High Convenience Yield

Positive Roll Yield

Question 4

Futures Prices < Spot Prices

High Convenience Yield

Positive Roll Yield

Answer 4

Backwardation

Question 5

Income Approach to

Real Estate Investing

Answer 5

(Income - Expenses)

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Capitalization Rate

Question 6

roll yield

Answer 6

• amount of return generated from in backwardated contracts, achieved by rolling short term contract into long term contract.
• positive if in backwardation.
• negative if in contago

Question 7

convenience yield

Answer 7

value of having physical commodity for use over period of futures contract.

ex - huge drought and no wheat. You sell get wheat and sell instead to someone. Difference btwn price in beg and price after shock is convenience yield.

Question 8

mezzanine financing

Answer 8

capital during period before ipo.

Question 9

Venture Capital Investment Stages

Answer 9

• Formative Stage
  Angel (Idea, Business Plan)
  Seed (R&D, Marketing)
  Early (Commercial Production, Sales)
• Later Stage (Expansion)
• Mezzanine Stage (IPO)

Question 10

three sources of yield in alt investments?

Answer 10

• roll yield, collateral yield, change in spot prices.
  
  • roll yield - yield due to a difference btwn spot and futures price, or difference btwn two future prices with different exp. dates.
  • collateral yield - int. earned on collateral required to enter futures contract
  • change in spot prices - total price return is combo of change in spot p and convergence of futures prices to spot prices over term of futures contract.