CAIA (Chartered Alternative Investment Analyst)
Practice COMPLETE EXAM LATEST VERSION 2026-2027
QUESTIONS AND ANSWERS
The majority of private equity investments have payout profiles that are most similar to an: -
answer>>A)at-the-money put option.
B)out-of-the-money call option. RIGHTTT
C)at-the-money call option. D)in-the-money
call option.
At a meeting of limited partners, there is a discussion of possible actions that can be taken to address
the recent poor evaluations of the limited partnership fund. Mary Frazier suggests that they request a
reduction in management fees, while Bert Page suggests they refuse to commit follow-on funding.
Which, if either, of these suggestions is an acceptable action by the limited partners? -
answer>>)Page's suggestion but not Frazier's suggestion. B)Frazier's suggestion but not Page's
suggestion.
C)Neither Page's nor Frazier's suggestion.
D)Both Frazier's and Page's suggestions. RIGHT
Which of the following risks faced by investors would NOT be explicitly priced into the expected return
of a venture capital investment? - answer>>A)Market risk. RIGHT B)Business risk.
C)Liquidity risk.
D)Idiosyncratic risk.
Compared to senior debt, mezzanine debt will most likely have: - answer>>A)a lower expected return.
B)a shorter time horizon.
C)warrants tied to the debt. RIGHT
D)more restrictive covenants.
,Which of the following statements regarding distressed debt is CORRECT? - answer>>A)The payoff on
distressed debt is usually short- to medium-term.
B)Investors of distressed debt purchase debt securities in start-up firms that are facing financial
hardship and may be heading towards or already in bankruptcy. C)Distressed debt generally
has a credit rating of C or lower.
D)Distressed debt investors are worried more about business risk than credit risk. RIGHT
Which of the following standards admonishes members and candidates against professional
dishonesty, fraud, and deceit and committing any act that reflects adversely on their professional
reputation, integrity, or competence? - answer>>A. Standard I(A): Knowledge of the Law
B. Standard I(B): Independence and Objectivity
C. Standard I(C): Misrepresentation
D. Standard I(D): Misconduct CORRECT
Ela Zomek, CAIA, is a research analyst for a fund of hedge funds. She learns that a portion of the firm's
research, prepared by another department, includes survivorship bias such that some of the firm's
performance is exaggerated. Ms. Zomek presents the research report to prospective clients in order to
solicit new business but avoids making any reference to the exaggerated performance. Which of the
following statements regarding Ms. Zomek's actions is consistent with the Code and Standards? -
answer>>A. Ms. Zomek violated the Code and Standards because she failed to inform her clients of the
bias in the report CORRECT
B. Ms. Zomek violated the Code and Standards because the report was prepared by multiple
sources and she failed to explicitly acknowledge those sources
C. Ms. Zomek did not violate the Code and Standards because she did not include the biased data
in her presentation
D. Ms. Zomek did not violate the Code and Standards because she has never included such bias in
her own research
The Fisher effect states that nominal interest rates are equal to the sum of real interest rates plus
which of the following? - answer>>A. A premium for anticipated inflation
B. A premium for the risk of unanticipated inflation
C. A premium for anticipated taxation
, D. A premium for the risk of unanticipated taxation
Alternative investment management differs from traditional investment management. Which of the
following is typically associated with alternative investments? - answer>>A. Active management
evaluated against a relative return standard
B. Active management evaluated against an absolute return standard CORRECT
C. Passive management evaluated against a relative return standard
D. Passive management evaluated against an absolute return standard
Which of the following is best defined as an investor's application to join a limited partnership? -
answer>>A. Private-placement memorandum
B. Partnership agreement
C. Subscription agreement CORRECT
D. Management company operating agreement
In the ex post capital asset pricing model (CAPM), what does the error term shown below represent? -
answer>>A. The unexplained return attributable to misestimation of beta
B. The unexplained return attributable to misestimation of the riskless rate
C. The portion of the asset's excess return that is due to systematic risk
D. The portion of the asset's excess return that is due to idiosyncratic risk
Primary, Secondary, Third, & Fourth Markets - answer>>Primary = IPO
Secondary = investors buy and sell securities they already own
Third = Exchange listed securities that are being traded OTC between broker-dealers and large
institutional investors
Fourth= OTC market for the direct exchange of securities between private institutions
What assets are often chracterized as traditional by some and alternatives by others in: hedge funds,
private equity, and real assets - answer>>Hedge Funds: Liquid alternative mutual funds
Practice COMPLETE EXAM LATEST VERSION 2026-2027
QUESTIONS AND ANSWERS
The majority of private equity investments have payout profiles that are most similar to an: -
answer>>A)at-the-money put option.
B)out-of-the-money call option. RIGHTTT
C)at-the-money call option. D)in-the-money
call option.
At a meeting of limited partners, there is a discussion of possible actions that can be taken to address
the recent poor evaluations of the limited partnership fund. Mary Frazier suggests that they request a
reduction in management fees, while Bert Page suggests they refuse to commit follow-on funding.
Which, if either, of these suggestions is an acceptable action by the limited partners? -
answer>>)Page's suggestion but not Frazier's suggestion. B)Frazier's suggestion but not Page's
suggestion.
C)Neither Page's nor Frazier's suggestion.
D)Both Frazier's and Page's suggestions. RIGHT
Which of the following risks faced by investors would NOT be explicitly priced into the expected return
of a venture capital investment? - answer>>A)Market risk. RIGHT B)Business risk.
C)Liquidity risk.
D)Idiosyncratic risk.
Compared to senior debt, mezzanine debt will most likely have: - answer>>A)a lower expected return.
B)a shorter time horizon.
C)warrants tied to the debt. RIGHT
D)more restrictive covenants.
,Which of the following statements regarding distressed debt is CORRECT? - answer>>A)The payoff on
distressed debt is usually short- to medium-term.
B)Investors of distressed debt purchase debt securities in start-up firms that are facing financial
hardship and may be heading towards or already in bankruptcy. C)Distressed debt generally
has a credit rating of C or lower.
D)Distressed debt investors are worried more about business risk than credit risk. RIGHT
Which of the following standards admonishes members and candidates against professional
dishonesty, fraud, and deceit and committing any act that reflects adversely on their professional
reputation, integrity, or competence? - answer>>A. Standard I(A): Knowledge of the Law
B. Standard I(B): Independence and Objectivity
C. Standard I(C): Misrepresentation
D. Standard I(D): Misconduct CORRECT
Ela Zomek, CAIA, is a research analyst for a fund of hedge funds. She learns that a portion of the firm's
research, prepared by another department, includes survivorship bias such that some of the firm's
performance is exaggerated. Ms. Zomek presents the research report to prospective clients in order to
solicit new business but avoids making any reference to the exaggerated performance. Which of the
following statements regarding Ms. Zomek's actions is consistent with the Code and Standards? -
answer>>A. Ms. Zomek violated the Code and Standards because she failed to inform her clients of the
bias in the report CORRECT
B. Ms. Zomek violated the Code and Standards because the report was prepared by multiple
sources and she failed to explicitly acknowledge those sources
C. Ms. Zomek did not violate the Code and Standards because she did not include the biased data
in her presentation
D. Ms. Zomek did not violate the Code and Standards because she has never included such bias in
her own research
The Fisher effect states that nominal interest rates are equal to the sum of real interest rates plus
which of the following? - answer>>A. A premium for anticipated inflation
B. A premium for the risk of unanticipated inflation
C. A premium for anticipated taxation
, D. A premium for the risk of unanticipated taxation
Alternative investment management differs from traditional investment management. Which of the
following is typically associated with alternative investments? - answer>>A. Active management
evaluated against a relative return standard
B. Active management evaluated against an absolute return standard CORRECT
C. Passive management evaluated against a relative return standard
D. Passive management evaluated against an absolute return standard
Which of the following is best defined as an investor's application to join a limited partnership? -
answer>>A. Private-placement memorandum
B. Partnership agreement
C. Subscription agreement CORRECT
D. Management company operating agreement
In the ex post capital asset pricing model (CAPM), what does the error term shown below represent? -
answer>>A. The unexplained return attributable to misestimation of beta
B. The unexplained return attributable to misestimation of the riskless rate
C. The portion of the asset's excess return that is due to systematic risk
D. The portion of the asset's excess return that is due to idiosyncratic risk
Primary, Secondary, Third, & Fourth Markets - answer>>Primary = IPO
Secondary = investors buy and sell securities they already own
Third = Exchange listed securities that are being traded OTC between broker-dealers and large
institutional investors
Fourth= OTC market for the direct exchange of securities between private institutions
What assets are often chracterized as traditional by some and alternatives by others in: hedge funds,
private equity, and real assets - answer>>Hedge Funds: Liquid alternative mutual funds
