Investment Vehicles and Strategies Flashcards
7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Vehicles and Strategies flashcards as text
A fund of funds structure investing in hedge funds typically results in which fee arrangement?
Answer: Two layers of fees: fund-level fees plus underlying hedge fund fees
Fund of funds investors pay two layers of fees: the fund-of-funds management/performance fee plus each underlying hedge fund's fees, which significantly reduces net returns.
Which factor primarily drives the price of a mortgage-backed security (MBS) relative to comparable Treasuries?
Answer: Prepayment risk, which creates negative convexity
MBS exhibit negative convexity because prepayments accelerate when rates fall (limiting price appreciation) and slow when rates rise (extending duration).
A portable alpha strategy involves:
Answer: Generating alpha from one asset class and transporting it to a different benchmark exposure using derivatives
Portable alpha separates alpha generation (e.g., from hedge funds) from beta exposure (e.g., S&P 500 via futures), allowing the alpha to be 'ported' onto any desired market exposure.
In venture capital, a 'down round' refers to:
Answer: A financing round in which the company's valuation is lower than in the previous round
A down round occurs when a company raises capital at a lower pre-money valuation than its previous round, diluting earlier investors.
A TIPS (Treasury Inflation-Protected Security) investor benefits primarily through:
Answer: Principal adjustments tied to CPI that protect purchasing power
TIPS principal is adjusted for inflation using the CPI, so both the principal value and resulting coupon payments rise with inflation.
Which of the following best describes a '130/30' equity strategy?
Answer: A fund that is 130% long and 30% short, maintaining 100% net equity exposure
A 130/30 strategy takes 130% long positions funded in part by 30% short positions, resulting in 100% net market exposure while exploiting both positive and negative views.
In the context of private equity buyouts, the primary mechanism for enhancing equity returns is:
Answer: Financial leverage that amplifies returns on invested equity capital
Leveraged buyouts use debt financing to amplify equity returns; if asset returns exceed the cost of debt, equity holders receive magnified gains.