- CFA Exams
- CFA Level I Exam
- Topic 8. Alternative Investments
- Learning Module 6. Hedge Funds
- Subject 2. Hedge Fund Investment Risk, Return and Diversification
CFA Practice Question
Which statement is true?
B. Most hedge funds report a NAV at the end of each week.
C. Investments in a typical hedge fund are much less liquid than investments in a typical mutual fund.
A. Hedge funds are entirely not regulated.
B. Most hedge funds report a NAV at the end of each week.
C. Investments in a typical hedge fund are much less liquid than investments in a typical mutual fund.
Correct Answer: C
A is false. Hedge fund managers, although exempt from disclosure requirements, must still follow other laws determined by securities regulators.
B is also false. Most of them do so every month or every quarter.
C is true. Hedge funds, unlike mutual funds, are not able to stand ready to buy and sell shares on any given date. Rather they have several forms of liquidity constraints that they impose on investors: liquidity dates, lockup periods, and minimum investment.
User Contributed Comments 3
| User | Comment |
|---|---|
| ankurwa10 | Hedge Funds, even though LESS regulated, still are regulated. As for B, it really depends on the frequency specific to a particular Hedge Fund (and given the liquidity of asset classes they trade), could very well be weekly. The answer discounts B as an option because it says "most" HFs, so it may very well be factually true. nothing conceptual here. |
| Inaganti6 | Got this wrong. In case of doubt in the CFA, always choose the answer that is unconditionally true (relative to other answer options). D'OH! |
| ascruggs92 | ^Yep. I think they intentionally give us options that will sound correct if you take the time to overthink it. Not chill! |