SERIES-6 practice question 24 of 35

Which of the following is true about a hedge fund?

Full set: 325 questions
Answer options
A:

A. It is designed to help investors hedge their risk and, as such, is a low risk alternative to a mutual fund.
B:

B. It is closed to all but sophisticated, wealthy investors.
C:

C. It is more liquid than almost any investment other than a money market mutual fund.
D:

D. It has very low management fees since it is passively managed.
Correct Answer:
<P>B</P>
Explanation

A hedge fund is closed to all but sophisticated, wealthy investors. Hedge fund managers engage in riskier strategies than mutual fund managers. They are fairly illiquid; the redemption of shares is restricted. They are actively managed, and management fees are much higher than those charged by other types of funds.

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