One seeming violation of the Law of One Price is the pervasive discrepancy of closed-end fund prices from their net asset values. Would you expect to observe greater discrepancies on diversified or less-diversified funds? Why?
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One seeming violation of the Law of One Price is the pervasive discrepancy of closed-end fund prices from their net asset values. Would you expect to observe greater discrepancies on diversified or less-diversified funds? Why?
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- One apparent violation of the Law on One Price is the pervasive discrepancy between the prices and net asset value of closed-end mutual funds. Would you expect to observe greater discrepancies on diversified or less diversified funds? Why?Why is it so hard for actively managed funds to generate higher rates of return than passively managed index funds having similar levels of risk? Is there a simple way for an actively managed fund to increase its average expected rate of return?Which of the following regarding the investor sentiment theory of the closed end fund puzzle is FALSE? a) Investors in closed end funds are not as important an ownership group in the assets of the funds’ investment portfolios. b) The closed end fund is riskier than the underlying portfolio. c) Arbitrageurs are subject to limits to arbitrage. d) The noise trader risk is diversifiable.
- Why can closed-end funds sell at prices that differ from net asset value while open-end funds do not?Which of the following is most accurate in describing the problems of survivorship bias and backfill bias in the performance evaluation of hedge funds?a. Survivorship bias and backfill bias both result in upwardly biased hedge fund index returns.b. Survivorship bias and backfill bias both result in downwardly biased hedge fund index returns.c. Survivorship bias results in upwardly biased hedge fund index returns, but backfill bias results in downwardly biased hedge fund index returns.Explain the concept of immunization within a portfolio management context. How can immunization be achieved for a fixed income strategy? What type of fund would typically employ immunization techniques? Further, can you employ immunization for asset only funds, and if so, how is this different to asset and liability types of funds? Carefully justify your answers.
- What are the advantages of evaluating fund performance based on Internal Rate of Return (IRR)? Why would an investor prefer to evaluate a fund based on a cash-on-cash return?Which of the following regarding the closed end fund puzzle is FALSE? Group of answer choices a) Discounts of the closed end funds are the norm. b) The fluctuations in the discounts appear to be mean reverting. c) When the existing funds trade at a discount, the new funds are also issued at a discount. d) When a closed end fund is open ended, the discount shrinksWhat are the two ways a sinking fund can be handled? Whichmethod will be chosen by the firm if interest rates have risen? Ifinterest rates have fallen?
- How do actively managed funds differ from passively managed funds? A. Managers of actively managed funds use their discretion to buy and sell assets as they attempt to generate higher returns.B. Actively managed funds focus on stocks; passively managed funds focus on bonds.C. Actively managed funds necessarily contain a greater variety of stocks or bonds than does a passively managed fund.D. Actively managed funds consistently outperform passively managed fundsWith respect to hedge fund investing, the net return to an investor in a fund of funds would be lower than that earned from an individual hedge fund because of:a. Both the extra layer of fees and the higher liquidity offered.b. No reason; funds of funds earn returns that are equal to those of individual hedge funds.c. The extra layer of fees only.Performance evaluation allows us to assess the performance of fund managers going beyond historical returns. In particular, we recognize that risk is anhinportant factor when assessing the performance of fund managers and hence it should be taken into account when evaluating fund managers. However,there are many measures used to assess this risk adjusted performance.a. Identify circumstances in which the Sharpe and Treynor indices can provide conflicting fund rankings and discuss why this is the case.b. Describe Jensen's alpha and the Carhart (1997) model.c. Describe how the information ratio is calculated and what it attempts to measure.