Investment Strategies Quiz

Strategies aiming to profit from price discrepancies among related assets (stocks, bonds, derivatives).

Strategies focusing on specific events impacting asset prices (e.g., mergers, bankruptcies).

Strategies betting on the direction of the market (e.g., bullish or bearish).

Investment approaches categorized into relative value, event-driven, and directional strategies.

Exploiting discrepancies in pricing of similar assets like stocks, bonds, or derivatives.

Capitalizing on specific market events like mergers, bankruptcies, or legal cases affecting asset prices.

Strategies anticipating market uptrends or downtrends.

Mutual funds focusing on alternative investment strategies.

The desired difference in price between two financial instruments (TD and RY).

November 1, 2018, the date when the trade began.

Selling TD shares with the expectation that their price will fall.

Buying RY shares with the expectation that their price will rise.

The difference in price between TD and RY shares in Canadian dollars.

Point in time when the trade's position is reversed.

Difference in value of two shares.

Average value of the share price spread.

Standard deviation of the price spread, a measure of its variability.

A figure displaying share price spread data.

A strategy that profits from the difference in yield between two similar bonds. An investor shorts the bond with the higher yield and buys the bond with the lower yield, hoping the spread between their yields will shrink.

The process of entering a credit spread trade by shorting the bond with the higher yield and buying the bond with the lower yield.

The predetermined yield spread at which the trade is reversed, signaling a profit opportunity.

A complete credit spread trade cycle, including initiation and reversal, resulting in a profit or loss.

The profits earned from merger arbitrage strategies are largely independent of the overall stock market performance.

Merger arbitrage funds manage equity risk by analyzing specific deal outcomes rather than predicting the entire market's direction.

The ratio of shares shorted in the acquiring company to shares bought in the target company is calculated to offset price fluctuations and manage risk.

A merger where the acquiring company's earnings per share decline after the acquisition due to the target company's lower contribution.

A merger where the acquiring company's earnings per share improve after the acquisition due to the target company's stronger contribution.

Investing in below-investment-grade debt securities (junk bonds) to earn returns through interest income and potential capital appreciation.

Junk bonds are typically rated BB or lower by Standard & Poor's and Ba or lower by Moody's.

These bonds can offer higher long-term returns compared to traditional investment-grade credit securities due to potential interest income and capital appreciation.

Shorting $740,000 worth of TD stock (10,000 shares).

Purchasing an equivalent dollar amount of RY stock (7,720 shares) with the proceeds from shorting TD.

Establishing a long position in one S&P/TSX 60 futures contract at a value of 900.70 ($180,140.00).

At least $28.00

A profit of C$58,575, which equates to a 7.92% RoR on the initial C$740,000 investment. This return corresponds to an annualized RoR of 23.75%.

An investment approach where the manager takes both long and short positions in stocks, attempting to profit from both rising and falling markets.

The overall exposure to the market, calculated by subtracting short positions from long positions and dividing by total capital.

A strategy aiming to neutralize market risk by holding pairs of stocks with identical market values, resulting in zero beta.

While market-neutral strategies have zero beta, long/short equity strategies have net exposure to the market, meaning the portfolio's beta is not zero.

Combining a market-neutral portfolio with a long or short position in relevant equity index futures.

Leverage is used to amplify returns but is typically modest, usually less than three or four times the capital.

Shorting stocks allows long/short funds to profit even when the market falls, unlike long-only funds.

Net exposure (in percentage terms) = (Long Exposure - Short Exposure) / Capital