AIP AIP Alternative Investments & Derivatives

Question 1

Which of the following best describes a hedge fund's use of leverage?

Accepted Answer

Leverage allows hedge funds to borrow capital to amplify potential returns

Answer

Leverage is prohibited in hedge fund strategies

Answer

Leverage is used solely to reduce portfolio volatility

Answer

Leverage refers to diversifying across multiple asset classes

Question 2

A call option gives the buyer the right to:

Accepted Answer

Purchase the underlying asset at the strike price before expiration

Answer

Sell the underlying asset at the strike price before expiration

Answer

Receive dividends from the underlying stock

Answer

Short sell the underlying asset at market price

Question 3

What is a primary characteristic of private equity investments?

Accepted Answer

Long lock-up periods and limited liquidity

Answer

High liquidity and daily market pricing

Answer

Government-guaranteed principal protection

Answer

Mandatory public disclosure of holdings

Question 4

In futures trading, 'marking to market' refers to:

Accepted Answer

Daily settlement of gains and losses in a futures account

Answer

Calculating the total market capitalization of a futures exchange

Answer

Setting the initial margin requirement for a new contract

Answer

Publishing futures prices on public exchanges

Question 5

A swap agreement in which one party pays a fixed interest rate and receives a floating rate is called a:

Accepted Answer

Plain vanilla interest rate swap

Answer

Currency swap

Answer

Equity swap

Answer

Credit default swap

Question 6

Which statement about real estate investment trusts (REITs) is correct?

Accepted Answer

REITs must distribute at least 90% of taxable income to shareholders

Answer

REITs are exempt from all federal taxation regardless of distribution

Answer

REITs invest exclusively in residential properties

Answer

REITs are not permitted to use debt financing