CAIA Level 1 questions with correct answers
Methods of Analyzing Alts - Answer 1)Return Computation Methods 2) Statistical Methods 3)Valuation Methods 5)Portfolio Management Methods How does Return Computation Method analysis for alts differ from traditional return computation analysis? - Answer Page 76 How do portfolio management methods differ between traditional investments and alts, and why do they need different methods? - Answer -Traditional PM methods assume that: 1) Markets are liquid 2)transaction costs are low 3)that the mean and variance of returns are the only input measures needed to optimize the portfolios risk/.return objectives -Because alts are illiquid, have inefficient pricing, and non normal returns alts need their own PM methods, which include: 1) Methods to address liquidity issues 2) Incorporate higher moments of the returns distributions (ie skewness and kurtosis) 3) Place emphasis on achieving superior returns 2.1.8. What are the other characteristics used to distinguish if an investment is a traditional investment or alternative? (8) - Answer
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