Reference no: EM133060241

Convertible Arbitrage

1. Define convertible arbitrage.

2. Compute the value of a convertible bond.

3. Discuss the risks involved in a long position of a convertible bond.

4. Explain how to hedge the risks in a long position of a convertible bond.

Event Driven Strategies

5. Describe merger-arbitrage strategy for cash tender offer, stock-to-stock offer, and cash plus stock offer. If both long and short positions are involved, specify the relative dollar amounts of the long and short positions.

6. Calculate arbitrage spread in a cash tender offer, stock-to-stock offer, and cash plus stock offer takeover.

7. Briefly explain whether merger-arbitrage is insider trading and why.

8. Describe the risks involved in a merger-arbitrage strategy and the approaches to manage such risks.

9. Describe the merger-arbitrage strategy if you believe the merger will fail.

10. Describe the strategy of distressed security investing.

11. Contrast economic distress with financial distress.

12. Contrast the passive with active approach to distressed investing.

13. Describe the direct lending strategy by hedge funds.

Directional Strategies

14. Contrast directional strategy with the original A.W. Jones model

15. Describe the key features of global macro strategy

16. Explain the underlying principle of carry trades.

17. Describe the carry trade strategy that explores opportunities in the U.S. yield curve in the early 1990s.

18. Design carry trade strategies that explore opportunities in the U.S. yield curve.

19. Describe the carry trade strategy that explores opportunities in the interest rate difference between Japanese Yen (low interest rate) and U.S. Dollar (high interest rate) in 1995-1998.

20. Design carry trade strategies exploring interest rate differences between two countries. Calculate the profit to such strategies and discuss how changes in exchange rates affect your profit.

21. Describe the carry trade strategy that explores opportunities in the low interest rates in U.S dollars, euros, and yens and higher interest rates in Iceland and New Zealand in the earlier 2000s.

22. Explain what is PIPE.

23. Explain why the convertible bond that converts into a specific dollar value of the underlying stock is "market neutral".

24. Discuss the risks involved in PIPEs investment

25. Discuss how hedge funds reduce the risk associated with the PIPEs investments

26. Discuss why hedge funds are more willing to be "investors of last resort" than other investors, such as mutual and pension funds.

27. Discuss why hedge funds that invest in PIPE securities perform relatively well though the companies obtaining funding from hedge funds perform relatively poorly.

28. Define and calculate margin in a long position

29. Calculate margin in a long position when stock price changes

30. Define maintenance margin

31. Calculate the stock price at which you will get a margin call in a long position

32. Calculate the rate of return when margin is used in a long position