Question

1)As the debt ratio increases:

a. fewer assets are debt- financed, and the ratio of debt-to-equity increases

b. fewer assets are debt- financed, and the ratio of debt-to-equity decreases

c. more assets are debt- financed, and the ratio of debt-to-equity increases

d. more assets are debt- financed, and the ratio of debt-to-equity decreases

2)Which of the following statements is true about hedge funds?

a. Hedge funds are mutual funds that specialize in derivative investments designed primarily for hedging purposes.

b. Because of their large size and varied investments, hedge funds are closely regulated by both the SEC and the CFTC.

c. The term hedge fund derives from a common hedge fund strategy based on anticipated changes in relative valuations in two market sectors.

d. Investments in hedge funds are very liquid, which means that investors in a hedge fund can withdraw their investments at any time without risk of loss in market value.

Answer 1

1)As the debt ratio increases:

The correct answer is c. more assets are debt-financed, and the ratio of debt-to-equity increases

As this ratio increases, Debt/equity increases

2) The correct statement is c) The term hedge fund derives from a common hedge fund strategy based on anticipated changes in relative valuations in two market sectors.

a) is incorrect because Hedge funds can be used for speculative purposes as well

b) is incorrect because hedge funds are not closely regulated

d) is incorrect because hedge funds are highly illiquid and have a lock-in period

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