CAIA SAMPLE EXAM 1 ACTUAL PAPER 2026
QUESTIONS SOLUTIONS GRADED A+
◉ Regarding alternative investment fund structures, a common
characteristic specific to drawdown funds is that: Answer: Each
investor commits a certain amount of capital.
◉ Which of the following best characterizes a return distribution
that has less kurtosis than a normal distribution? Answer:
Platykurtic.
◉ Which of the following statements is correct relative to the term
structure of implied forward rates? Answer: The term structure of
forward rates will plot above the spot rate curve when rates are
upward sloping.
◉ With regard to commodity futures contracts, which of the
following statements concerning margin is most accurate? Answer:
The maintenance margin is the amount of margin that must be
maintained in a futures account and is usually set at 75-80% of the
initial margin.
◉ Which of the following options strategies would be most
appropriate for an investor wishing to protect against a security
,price decline but benefit from an unlimited security price
appreciation? Answer: Protective put.
◉ Which of the following best defines value at risk (VaR)? Answer:
The maximum loss over a defined period of time at a stated level of
significance, given normal market conditions.
◉ Blair Kuhnen, CAIA, is analyzing different measures of risk-
adjusted performance and has heard about a particular ratio, the
Sortino ratio, which is especially useful in analyzing alternative
investments. How would the numerator and denominator be best
stated in the Sortino ratio formula? Answer: Numerator subtracts a
target return from the portfolio return. Denominator uses target
semistandard deviation.
◉ Sortino Ratio Answer:
◉ The method in which regression estimates are derived by
minimizing the sum of squared residuals is best known as: Answer:
ordinary least squares (OLS).
◉ Analysts Bill Shears and Penny Rhodes recently derived
benchmarks for a hedge fund. Shears concludes that benchmark
comparisons can be complicated because drivers of benchmark
returns must match those of the fund. Rhodes concludes that
benchmark comparisons can be complicated because tests must be
, run to determine if incremental performance is attributable to skill
or luck. Regarding the conclusions reached by Shears and Rhodes:
Answer: both Shears and Rhodes are correct.
◉ A managed futures fund manager has been transitioning
operations toward highly complex managed futures strategies, many
of them involving thinly traded futures markets. The manager
continually searches for strategies with high levels of potential
alpha. Which of the following best describes the hedge fund
manager's strategy? Answer: Product innovator.
◉ An analyst is concerned that the trading strategy she recently
identified has generated a statistically insignificant result and has
asked for guidance in assessing the strategy. A result is statistically
significant if it is: Answer: unlikely to have occurred merely by
chance, and the p-value is less than the significance level.
◉ In hypothesis testing, the confidence level equals: Answer: 1
minus the significance level.
◉ With respect to issues in sampling and testing, which of the
following is a primary problem with data dredging? Answer: Too
much confidence is placed on the results.
◉ What type of instrument is a commodity-linked note (CLN), and
what is a key advantage of issuing a CLN? A CLN is a(n) Answer:
QUESTIONS SOLUTIONS GRADED A+
◉ Regarding alternative investment fund structures, a common
characteristic specific to drawdown funds is that: Answer: Each
investor commits a certain amount of capital.
◉ Which of the following best characterizes a return distribution
that has less kurtosis than a normal distribution? Answer:
Platykurtic.
◉ Which of the following statements is correct relative to the term
structure of implied forward rates? Answer: The term structure of
forward rates will plot above the spot rate curve when rates are
upward sloping.
◉ With regard to commodity futures contracts, which of the
following statements concerning margin is most accurate? Answer:
The maintenance margin is the amount of margin that must be
maintained in a futures account and is usually set at 75-80% of the
initial margin.
◉ Which of the following options strategies would be most
appropriate for an investor wishing to protect against a security
,price decline but benefit from an unlimited security price
appreciation? Answer: Protective put.
◉ Which of the following best defines value at risk (VaR)? Answer:
The maximum loss over a defined period of time at a stated level of
significance, given normal market conditions.
◉ Blair Kuhnen, CAIA, is analyzing different measures of risk-
adjusted performance and has heard about a particular ratio, the
Sortino ratio, which is especially useful in analyzing alternative
investments. How would the numerator and denominator be best
stated in the Sortino ratio formula? Answer: Numerator subtracts a
target return from the portfolio return. Denominator uses target
semistandard deviation.
◉ Sortino Ratio Answer:
◉ The method in which regression estimates are derived by
minimizing the sum of squared residuals is best known as: Answer:
ordinary least squares (OLS).
◉ Analysts Bill Shears and Penny Rhodes recently derived
benchmarks for a hedge fund. Shears concludes that benchmark
comparisons can be complicated because drivers of benchmark
returns must match those of the fund. Rhodes concludes that
benchmark comparisons can be complicated because tests must be
, run to determine if incremental performance is attributable to skill
or luck. Regarding the conclusions reached by Shears and Rhodes:
Answer: both Shears and Rhodes are correct.
◉ A managed futures fund manager has been transitioning
operations toward highly complex managed futures strategies, many
of them involving thinly traded futures markets. The manager
continually searches for strategies with high levels of potential
alpha. Which of the following best describes the hedge fund
manager's strategy? Answer: Product innovator.
◉ An analyst is concerned that the trading strategy she recently
identified has generated a statistically insignificant result and has
asked for guidance in assessing the strategy. A result is statistically
significant if it is: Answer: unlikely to have occurred merely by
chance, and the p-value is less than the significance level.
◉ In hypothesis testing, the confidence level equals: Answer: 1
minus the significance level.
◉ With respect to issues in sampling and testing, which of the
following is a primary problem with data dredging? Answer: Too
much confidence is placed on the results.
◉ What type of instrument is a commodity-linked note (CLN), and
what is a key advantage of issuing a CLN? A CLN is a(n) Answer:
