Questions: Alternative Investments
FTX4086F
ALTERNATIVE INVESTMENTS
TIME: 180 MINUTES
4 June 2012
MARKS: 140
PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY:
1.
PLEASE DO NOT TURN THIS PAGE OVER UNTIL INSTRUCTED TO DO SO.
2.
Ensure that your name and student number appears on the cover of each Answer Book.
Please complete this before the test commences.
3.
Each Section is to be answered in a separate answer book and the answer book must be clearly marked.
4.
All Answers must be done in ink, although workings may be done in pencil.
5
Show all workings clearly.
6.
You may not write anything in your answer books before the start of the test or once you have been instructed to stop writing.
7.
You must remain seated until every paper has been collected.
8.
The invigilators will answer no questions relating to the paper during the test. Make whatever assumptions you deem appropriate and clearly state these in your answer. Any reasonable assumption will be considered.
This test paper consists of 7 pages including the cover page
1
Section A: Real Estate, Commodities and Private Equity
(100 marks)
Real Estate (20 marks)
Question 1
[20 marks]
a)
Busy Valley is a suburb which contains 1.2 million m2 of office space. The intersection between the Busy Valley office space demand curve and a supply of 1.2 million m2 office space corresponds to a rental of R120/m2, yet the current observed market rental is R150/m2. By considering supply and demand dynamics, explain why this could be the case. (max. 12 lines)
(4 marks)
b)
Sadia manages an investment fund with a conservative mandate that primarily seeks to minimise capital losses. She is considering placing a part of the fund in mortgage backed securities, and has to choose between Meridian Tranche B (weighted average LTV of 85%), and
Meridian Tranche C (weighted average LTV of 55%). Explain which of the two tranches she should invest in and why. (max. 10 lines).
ALTERNATIVE INVESTMENTS
TIME: 180 MINUTES
4 June 2012
MARKS: 140
PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY:
1.
PLEASE DO NOT TURN THIS PAGE OVER UNTIL INSTRUCTED TO DO SO.
2.
Ensure that your name and student number appears on the cover of each Answer Book.
Please complete this before the test commences.
3.
Each Section is to be answered in a separate answer book and the answer book must be clearly marked.
4.
All Answers must be done in ink, although workings may be done in pencil.
5
Show all workings clearly.
6.
You may not write anything in your answer books before the start of the test or once you have been instructed to stop writing.
7.
You must remain seated until every paper has been collected.
8.
The invigilators will answer no questions relating to the paper during the test. Make whatever assumptions you deem appropriate and clearly state these in your answer. Any reasonable assumption will be considered.
This test paper consists of 7 pages including the cover page
1
Section A: Real Estate, Commodities and Private Equity
(100 marks)
Real Estate (20 marks)
Question 1
[20 marks]
a)
Busy Valley is a suburb which contains 1.2 million m2 of office space. The intersection between the Busy Valley office space demand curve and a supply of 1.2 million m2 office space corresponds to a rental of R120/m2, yet the current observed market rental is R150/m2. By considering supply and demand dynamics, explain why this could be the case. (max. 12 lines)
(4 marks)
b)
Sadia manages an investment fund with a conservative mandate that primarily seeks to minimise capital losses. She is considering placing a part of the fund in mortgage backed securities, and has to choose between Meridian Tranche B (weighted average LTV of 85%), and
Meridian Tranche C (weighted average LTV of 55%). Explain which of the two tranches she should invest in and why. (max. 10 lines).