A commodity market is in contango if the spot price is:

An investment in a hedge fund with a 2-and-20 fee structure has increased in value each period and earned a return of 8% net of management fees in 20x7. Under which of the following provisions would incentive fees for 20x7 be the highest?

6% soft hurdle rate and a high water mark provision.

With a soft hurdle rate, the incentive fee is a percentage of the entire return once the hurdle rate is met. With a hard hurdle rate, the incentive fee is a percentage of return in excess of the hurdle rate. A high water mark does not affect the incentive fee for an account that has increased in value each period. A soft hurdle rate would result in incentive fees of 20% x 8% = 1.6% of assets; a 5% hard hurdle rate would result in incentive fees of 20% x (8% − 5%) = 0.6% of assets; and a 7% hard hurdle rate would result in incentive fees of 20% x (8% − 7%) = 0.2% of assets.

Which of the following is least likely a source of return from a collateralized commodity futures position?

Storage costs

The sources of return from a collateralized commodities futures position are roll yield, collateral yield, and spot price return.

A leveraged buyout fund is evaluating Siena Company relative to its peer companies. Siena is most likely a good candidate for a management buy-in if it has:

higher cash flow and less capable managers than its peers.

In a management buy-in, a leveraged buyout (LBO) fund replaces the existing managers of a portfolio company with a new team it believes can increase the value of the company. Companies with high cash flow are attractive candidates for LBOs because their cash flow can help service the debt issued to finance the LBO. A company with high cash flow and capable managers is a potential candidate for a management buyout (MBO), a transaction in which the managers participate and stay on after the company goes private.

Consider the following statements:
Statement 1: The Sharpe ratio for commodities as an asset class has historically been higher than bonds but lower than stocks.
Statement 2: The volatility of commodity prices tends to be higher than the volatility for reported consumer price inflation.
Which of the following is most likely?

Only Statement 1 is incorrect.

The Sharpe ratio for commodities as an asset class has historically been lower than for both stocks and bonds. Historically, commodities have earned a lower return than stocks and bonds, and have had a higher standard deviation than stocks and bonds.

Which of the following alternative investments is most appropriate for a high net worth investor with a long time horizon and a requirement for current income?

Commercial real estate.

While all these investments are available to a high net worth investor with a long time horizon, only commercial real estate is expected to produce current income.

The value of an existing single-family home used for residential purposes will most likely be calculated using the:

sales comparison approach.

An existing single-family home for residential purposes will most likely be valued using the sales comparison method

Funds from operations (FFO) for a REIT are most likely calculated as:

Net income plus depreciation less gains from sales of real estate plus losses from sales of real estate.

FFO, in its most basic form, equals net income plus depreciation charges on real estate property less gains from sales of real estate property plus losses on sales of real estate property.

A commodity market is in contango if the spot price is:

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