Alternative Investments MCQ - Alternative Investments Section 2

26 If a commodity’s forward curve is in backwardation, the component of a commodities futures return most likely to reflect this is:

When futures prices are lower than the spot price, the commodity forward curve is downward sloping, and the prices are referred to as being in backwardation. Backwardation occurs when the convenience yield is high.

27 BMA Hedge Fund and AKD Hedge Fund invest in the same asset class using a similar investment strategy. A potential investor has gathered the following data from the hedge funds:

Characteristic	BMA	AKD
Annualized returns	24%	16%
Track Record	3 years	7 years
Fees	1.25 and 12	1.75 and 18
Sharpe Ratio	1.5	1.8

Based on the above information, the investor is most likely to:

First he should research how returns are calculated and if they are comparable before making any decision.

28 AKD private equity fund is considering purchasing a firm that had an EBITDA of PKR 400 billion. In the past year, three firms from the same industry were sold for 5x EBITDA, 6x EBITDA, and 7x EBITDA. Based on this information, the maximum value AKD is most likely to assign to the firm is:

The maximum value AKD is most likely to assign is that using the highest multiple (7 × PKR400 billion = PKR2,800 billion)

29 BMA hedge fund restricts its investment universe to KSE, an actively traded stock exchange of Pakistan. Its NAV will be calculated using:

BMA is most likely to use average quotes. The securities are actively traded so no liquidity adjustment is required. If the fund uses bid/ask prices, the fund would use ask prices for shorts and bid prices for longs, i.e. the prices at which the positions could be closed

30 Lydia Smith wishes to find an apartment building’s worth using the income approach. The gross potential rental income is $1,750,000, and the net operating income is $362,500. Other bits of information available include the following:

Financing percentage:	75%
Market capitalization rate:	8%
Cost of equity:	10%

Which of the following is most likely to be appraisal price of the building?