2014-CFA必备-Q-6CFA Alternative Investments

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CF A 辅导系列丛书

2006—2013 CF A Level III

Morning Session

Portfolio Management–Alternative

Investments

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Portfolio Management–Alternative

Investments

2009.Q.8

QUESTION 8 HAS TWO PARTS (A, B) FOR A TOTAL OF 15 MINUTES. Hank Smith is the portfolio manager of U.S.-based PM Hedge Fund (PM), which focuses on precious metals, fixed income, and derivatives. Smith has a strategy of rolling forward a long position in short-dated platinum futures traded on NYMEX. Smith’s expectations are as follows:

●Electr icity supply disruptions in South Africa, the world’s dominant platinum

producer, will cause platinum supply to fall and spot prices to rise.

●Interest rates will rise.

●The convenience yield on platinum will increase.

Smith observes that his expectations are not yet reflected in platinum futures prices.

A.Determine, given that Smith’s market expectations are correct, whether an

increase, a decrease, or no change in each of the following return

components should be expected:

i. spot return (price return)

ii. collateral return (collateral yield)

iii. roll return (roll yield)

Justify each response with one reason.

Answer Question 8-A in the Template provided on page 3.

(9 minutes)

PM holds a four-year 120,000,000 U.S. dollars (USD), 6% fixed rate bond that pays interest semi-annually. Smith expects four-year USD interest rates to rise. He wants to reduce the duration of the bond position. Lizelle Hoorn, an analyst at PM, suggests that Smith can reduce the modified duration of this position, which is currently 3, to a more acceptable 0.3 by using an interest rate swap. Smith wants the notional principal on the swap to be as close as possible to the USD 120,000,000 principal of the original bond. Hoorn provides Smith with four possible swaps, shown in Exhibit 1. Assume that the modified duration of the fixed rate component of a swap is 75% of its maturity.

Exhibit 1

B.Determine which swap best achieves Smith’s stated goals. Justify your

response with two reasons.

Answer Question 8-B in the Template provided on page 4.

(6 minutes)

2008.Q.6

QUESTION 6 HAS THREE PARTS (A, B, C) FOR A TOTAL OF 11 MINUTES.

Keith Dalk is a portfolio manager for a commodity investment fund. Dalk observes higher economic growth in emerging markets and the resulting higher demand for commodities. He investigates trading opportunities in the copper market. The spot price is 316 cents/lb., and the three-month forward contract price is 313 cents/lb. He decides to implement a reverse cash-andcarry arbitrage to profit from the difference between the spot and forward prices.

A.Describe the two components of the synthetic commodity position in this

arbitrage.

(4 minutes)

Dalk can borrow or lend cash at five percent, and the lease rate for copper is six percent. These are continuously compounded interest rates.

https://www.360docs.net/doc/743402259.html,pute Dalk’s profit on a reverse cash-and-carry arbitrage in the copper

market.

(4 minutes)

Dalk believes that manufacturers will increase their inventories of copper in expectation of higher sales. This higher demand may increase the convenience yield in this market.

C.Explain how a higher convenience yield for copper would affect the

no-arbitrage price range for the forward price.

(3 minutes)

2006.Q.10

QUESTION 10 HAS TWO PARTS (A, B) FOR A TOTAL OF 17 MINUTES.

Marc Coleman, a portfolio manager, is preparing to make a presentation to the investment committee of an endowment fund about the merits of using hedge funds and commodity futures to provide diversification in its portfolio.

Coleman would like to identify an appropriate hedge fund index to use as a benchmark. Selected features of the Global Long/Short Hedge Fund Index are shown in Exhibit 1.

Exhibit 1

Global Long/Short Hedge Fund Index

A.Determine whether each of the features described above is appropriate or

inappropriate for an index used as a benchmark. If inappropriate, explain,

with one reason, why the feature limits the usefulness of the index as a

benchmark.

Answer Question 10-A in the Template provided on page 7.

(9 minutes)

After Coleman makes his presentation to the endowment fund investment committee, committee members ask the following questions:

●“What is an implied hedge fund hurdle rate?”

●“In your presentation you state that an appropriate implied hedge fund hurdle

rate, for hedge funds as a group, is 125 basis points above cash returns. Why is the hurdle rate so low?”

●“Commodity futures have higher volatility than equities, so how can adding

commodity futures to the portfolio decrease overall portfolio risk?”

●“Why may rising inflation correlate with strong performance for commodity

futures?”

B.Prepare an appropriate response for each of the four questions from the

committee members.

Answer Question 10-B in the Template provided on page 8.

(8 minutes)

Template for Question 10-A