14. What do returns on a diversified index of various hedge fund strategies over the period 1994-2003 indicate with respect to periods of positive and negative market performance? A. Compared with equity-based asset classes, hedge funds offer higher returns in both up markets and down markets. B. Compared with equity-based asset classes, hedge funds offer lower returns in both up markets and down markets. C. Compared with equity-based asset classes, hedge funds offer higher returns in up markets but lower returns in down markets. D. Compared with equity-based asset classes, hedge funds offer lower returns in up markets but higher returns in down markets. 15. Which of the following option positions of and by itself best describes the payoff characteristics of a hedge fund manager entitled to incentive fees based on the profits of the fund? A. Long a call B. Short a call C. Long a put D. Short a put 16. Which strategy on average survives the longest? A. Directional B. Non-directional C. A&B D. None of the above 17. A hurdle rate is: A. the rate of return the hedge fund manager must beat before collecting incentive fees. B. the rate of return the hedge fund manager must beat before collecting management fees. C. the rate of return the hedge fund manager must beat before the manager returns capital to the investors. D. the rate of return the hedge fund manager must beat before the manager returns to a normal leverage position. 18. In addition, to economic risks, hedge funds also are subject to transparency risk. Transparency risk is the: A. uncertainty associated with determining and measuring the sources of risk because the manager's strategies and positions are unknown B. inability to accurately measure and forecast Sharpe ratios C. possibility that the risk of the hedge fund is being measured and managed incorrectly D. inability to know the trading patterns of the hedge fund manager