Practice Questions Flashcards
Key Performance Drivers for PE Investing
(1) Selection of fund manager
(2) management of diversification
(3) management of capital commitments
Total Value to Paid in Ratio (TVPI)
a measure of the cumulative distribution to investors plus the total value of the unrealized investments relative to to the total capital drawn from investors.
TVPI = DPI + RVPI
Distribution to Paid-in Ration (DPI)
a measure of the cumulative distribution to investors relative to the total capital drawn from investors
Residual Value to Paid-in Ration (RVPI)
a measure of the total value of the unrealized investments relative to the total capital drawn from investors
CAPM Formula
CAPM = Rf + Beta*[E(Rm) - RF]
What is the most common process for selling timberland through auction?
a “sealed bid auction”. Each party submits a private offer price to the seller and the highest bidder wins
Omega Ration
A general measure of risk that takes into account the entire distribution.
Formula = Average Upper Partial Moment/Average Lower Partial Moment
Upper Partial Moment = max(R-T,0)
Lower Partial Moment = Max(T-R,0)
Portfolio Construction Using a Volatility Weighted Approach
Weight(x) = (1/x%)/[(1/x%)+(1/y%)+(1/z%)…]
Priority of Claims During a Bankruptcy
(1) Secured Creditors (2) Bankruptcy Admin Costs (3) Post-petition bankruptcy expenses (4) Owed Wages (5) Owed Benefit Plan Contributions (6) Unsecured Customer Deposits (7) Taxes (8) Unfunded Pension Liabilities (limit 30% BV) (9) unsecured claims (10) Preferred Stockholders (11) Common Shareholders
Mean Variance Asset Allocation
Allocates more weight to assets/funds with higher mean-variance efficiency (or better risk-return profiles)
Unlevered Beta
B(u) = B(l)/ [1+(1-CorpTax)(D/E)]
To qualify as a REIT, how much income (%) must a corporation generate from real estate assets?
75%
Representativeness Bias
participants look at past prices to form their beliefs
disposition effect
leads market participants to close profitable positions quickly and hold losing positions for a longer period
Fee Netting
involves netting the positive and negative returns of the managers in the fund
’40 Act fund
a pooled investment vehicle offered
by a registered investment company as defined in
the 1940 Investment Companies Act . A way fro hedge fund products to be delivered.
Over-commitment Ratio
Overcommitment ratio = Total Commitments/Resources available for commitments
overcommitment rations help to decrease the opportunity cost of less profitable srategies
TOPSCAN
(1) Team Building, (2) Operations, (3) Perspective, (4) Skill Building, (5) Customer Development, (6) Analysis, (7) Network
Crack Spread
hedges typically used by oil refineries. Would involve going long crude oil futures and short gasoline and heating oil
Commodity returns are (1)______ during contractive monetary policy regimes and (2) ______ during expansive monetary policy regimes.
(1) Higher, (2) Lower
Contango
when the forward curve is upward sloping. When the future price is higher than the spot price
Long only excess returns tend to be negative in a contango market.
Backwardation
when the forward curve is downward sloping. When the future price is below the spot price.
Long only excess returns tend to be positive in a backwardated market.
What year was the CFTC created?
1974
Defined Contribution Pension Plan
the employee makes a defined contribution each period. The employee bears longevity risk.