IAR Investment Vehicles 5

Question 1

A hedge fund employing a 'long/short equity' strategy primarily seeks to profit by:

Accepted Answer

Going long stocks expected to rise and shorting stocks expected to fall

Answer

Long/short equity funds take long positions in stocks believed to be undervalued and short positions in overvalued stocks, seeking market-neutral or directional alpha.

Question 2

Which statement accurately describes the tax treatment of qualified dividends for individual US investors?

Accepted Answer

Qualified dividends are taxed at preferential long-term capital gains rates

Answer

Qualified dividends paid by domestic corporations and certain foreign corporations to shareholders meeting holding period requirements are taxed at favorable long-term capital gains rates.

Question 3

A business development company (BDC) primarily invests in:

Accepted Answer

Small and mid-sized private or thinly traded US companies

Answer

BDCs are closed-end funds regulated under the '40 Act that provide debt and equity capital to small and mid-sized private US businesses.

Question 4

When interest rates rise, which bond characteristic causes the greatest price decline?

Accepted Answer

Long maturity and low coupon (high duration)

Answer

Bonds with long maturities and low coupons have the highest duration, making them most sensitive to interest rate changes and causing the greatest price decline when rates rise.

Question 5

Which of the following best describes a 'wrap account' offered by an investment adviser?

Accepted Answer

An account bundling management, trading, and custody services for a single all-inclusive fee

Answer

A wrap account bundles portfolio management, transaction costs, and custodial services into a single comprehensive fee, typically expressed as a percentage of assets.

IAR Practice Test

IAR Practice Test

IAR Investment Vehicles 5