What to know
Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.
Alternative Investments
7. Hedge Funds practice questions
7. Hedge Funds is part of CFA Level I Alternative Investments. Alternative Investments questions emphasize private capital, real estate, infrastructure, natural resources, hedge funds, digital assets, and performance measurement. Use this page to review the controlling ideas, then work through 8 questions with answer explanations and common traps.
Review the worked explanations before moving into adaptive practice. The app version can mix this topic with due reviews and weak related concepts.
Practice this topicHow to practice
Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.
Review signal
Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.
Alternative Investments
7. Hedge Funds
A hedge fund strategy that seeks to profit from announced mergers by buying target shares and shorting acquirer shares is most accurately classified as:
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7. Hedge Funds
A fund-of-funds hedge fund vehicle most likely offers:
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7. Hedge Funds
A long/short equity manager is long undervalued stocks and short overvalued stocks while maintaining close to zero net market exposure. The strategy is most accurately described as:
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7. Hedge Funds
A relative value hedge fund that buys undervalued convertible bonds and hedges equity sensitivity by shorting the issuer's stock is most accurately classified as:
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7. Hedge Funds
A hedge fund borrows securities from a prime broker to sell short. The risk that losses force rapid repurchase of the securities at rising prices is best described as:
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7. Hedge Funds
A hedge fund begins the year at USD100 million and ends the year at USD118 million before fees. The high-water mark is USD110 million. The fund charges a 2% management fee on ending gross value and a 20% incentive fee above the high-water mark after management fees. The investor net return is closest to:
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7. Hedge Funds
A hedge fund has low beta to equities but uses substantial derivatives leverage and trades with several OTC counterparties. The most accurate risk assessment is that:
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7. Hedge Funds
A hedge fund index shows strong historical returns, but poorly performing funds stopped reporting and successful funds added prior returns when entering the database. The index is most likely affected by:
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