Investments - Chapter 17

In 2020, to be classified as an accredited investor, a person must have at least $_____ in net assets to invest.

1 million

Some alternative investments are structured as limited partnerships. These investments limit the number of partners to fewer than _____.

100

In the U.S., which type of investor has assets or income that exceed a minimum level set by the federal government and qualifies to invest in more aggressive alternative investments and strategies?

accredited

Which of the following is the total amount of capital that an investor has agreed to invest in a fund over its entire life?

committed capital

Which approach to valuing real estate would use the question "What would it cost to replace the building in its current form?"

cost approach

The first step in the investment process is _____.

deal flow

True or false: Adding an extremely risky alternative asset cannot reduce the risk of the overall portfolio.

false

True or false: Being able to use margin is one potential advantage of using spot market trades.

false

A _____ mark is a provision that ensures performance fees are not earned when the value of the fund regains previous levels.

high-water

Contango occurs when the futures price is ___________ (lower/higher) than the spot price.

higher

The standard management fee for an alternative investment is typically ________ (higher/lower) than the fee for an average mutual fund.

higher

The different tax treatment for alternative investments often means that investors will incur the added cost of _____.

hiring specialists to calculate their taxes

The trading costs for physical assets usually include storage and _____.

insurance

In 2006, the SEC required larger hedge funds to register as _____.

investment advisors

For the same investment amount, futures contracts enable investors to take a much ___________ (smaller/larger) position than spot market investors.

larger

Alternative investments are typically ________ (more/less) liquid than traditional investments.

less

Since some alternative investments are structured in a way that circumvents many registration requirements, these funds are said to be _____ because the funds face fewer reporting requirements.

less transparent

Alternative investments sometimes contain a _____ period, which means that investors commit to a minimum time period before they can withdraw any of their money. This period serves to limit the liquidity.

lockup

Backwardation occurs when the futures price is _________ (lower/higher) than the spot price.

lower

Which type of hedge fund investment style has a goal of offsetting risk by holding positions in pairs of securities?

market neutral

Which type of hedge fund investment style focuses on identifying trends in particular sectors or the overall global market?

market timing

The tax implications for alternative investments are generally ________ (more/less) complex than those for traditional investments.

more

Versus private equity, venture capital is a ________ (more/less) risky type of investment fund.

more

When adding an alternative investment type to your portfolio, if the asset's return does not have a high ___________ correlation with the returns of the assets already in the portfolio, then risk can be reduced.

positive

A __________ placement memorandum details the characteristics of a proposed fund and is distributed to potential investors.

private

Which approach to valuing real estate is commonly used to value homes?

sales comparison

Deal _________ is the third step in the investment process.

structure

True or false: As a result of the financial crisis of 2008, Congress is considering even stricter regulations for hedge funds.

true

True or false: Venture capitalist is a much riskier type of investment fund because the business failure rates in the early stages can be quite high.

true

With a high- _________ mark, the value of the fund must exceed the previous high value of the fund before new performance fees are paid to the manager.

water