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CFA Level I - Alternative Investments:
Top 100 Questions
1. Question: Which of the following is a defining characteristic of
alternative investments compared to traditional investments?
a) High liquidity and transparency
b) Standardized and frequent valuation
c) Less regulation and lower complexity
d) Lower liquidity and less transparency
Answer: d) Lower liquidity and less transparency
2. Question: Hedge funds are best described as:
a) Highly regulated investment vehicles available to all investors.
b) Passively managed funds that track market indices.
c) Actively managed investment funds that may use complex strategies and
are typically available to sophisticated investors.
d) Funds that primarily invest in government bonds.
Answer: c) Actively managed investment funds that may use complex
strategies and are typically available to sophisticated investors.
3. Question: Which of the following is a common fee structure for hedge
funds?
a) A fixed percentage of assets under management (AUM).
b) A fixed percentage of profits generated.
c) A combination of a management fee based on AUM and a performance
fee based on profits (e.g., "2 and 20").
d) A commission-based structure per transaction.
Answer: c) A combination of a management fee based on AUM and a
performance fee based on profits (e.g., "2 and 20").
,4. Question: A "high-water mark" in a hedge fund fee structure refers to:
a) The highest level of assets under management achieved by the fund.
b) The highest cumulative net profit the fund has achieved, above which a
performance fee will be charged.
c) The minimum return required before a performance fee is charged.
d) The maximum fee that can be charged by the fund.
Answer: b) The highest cumulative net profit the fund has achieved,
above which a performance fee will be charged.
5. Question: Which of the following is a common hedge fund strategy that
aims to profit from relative mispricing between related securities?
a) Long/short equity
b) Global macro
c) Event-driven
d) Market neutral
Answer: d) Market neutral
6. Question: A hedge fund strategy that involves taking long positions in
undervalued equities and short positions in overvalued equities within
the same sector is known as:
a) Global macro
b) Dedicated short bias
c) Long/short equity
d) Managed futures
Answer: c) Long/short equity
7. Question: Private equity investments primarily involve:
a) Investing in publicly traded companies with small market capitalizations.
b) Investing in companies that are not listed on a public stock exchange.
c) Lending money to private individuals for real estate ventures.
d) Trading in privately issued debt securities.
Answer: b) Investing in companies that are not listed on a public stock
exchange.
8. Question: A leveraged buyout (LBO) is a type of private equity
transaction where a company is acquired using:
a) Primarily equity financing.
, b) A significant amount of borrowed funds (debt).
c) Only the existing cash reserves of the acquiring firm.
d) A combination of equity and publicly traded bonds.
Answer: b) A significant amount of borrowed funds (debt).
9. Question: Venture capital is a type of private equity that focuses on:
a) Investing in mature, established companies.
b) Providing debt financing to small businesses.
c) Investing in early-stage, high-growth potential companies.
d) Acquiring and restructuring underperforming companies.
Answer: c) Investing in early-stage, high-growth potential companies.
10.Question: Which of the following is a common exit strategy for private
equity firms?
a) Holding the investment indefinitely.
b) Regularly trading the company's shares on a private exchange.
c) An initial public offering (IPO) or a sale to another company.
d) Distributing the company's profits as dividends to the private equity firm.
Answer: c) An initial public offering (IPO) or a sale to another
company.
11.Question: Real estate as an alternative investment includes:
a) Only residential properties.
b) Only commercial properties.
c) Land, residential properties, commercial properties, and infrastructure.
d) Only publicly traded real estate investment trusts (REITs).
Answer: c) Land, residential properties, commercial properties, and
infrastructure.
12.Question: Which of the following is a direct investment in real estate?
a) Buying shares in a REIT.
b) Investing in a real estate mutual fund.
c) Purchasing a commercial building.
d) Lending money secured by a mortgage.
Answer: c) Purchasing a commercial building.
CFA Level I - Alternative Investments:
Top 100 Questions
1. Question: Which of the following is a defining characteristic of
alternative investments compared to traditional investments?
a) High liquidity and transparency
b) Standardized and frequent valuation
c) Less regulation and lower complexity
d) Lower liquidity and less transparency
Answer: d) Lower liquidity and less transparency
2. Question: Hedge funds are best described as:
a) Highly regulated investment vehicles available to all investors.
b) Passively managed funds that track market indices.
c) Actively managed investment funds that may use complex strategies and
are typically available to sophisticated investors.
d) Funds that primarily invest in government bonds.
Answer: c) Actively managed investment funds that may use complex
strategies and are typically available to sophisticated investors.
3. Question: Which of the following is a common fee structure for hedge
funds?
a) A fixed percentage of assets under management (AUM).
b) A fixed percentage of profits generated.
c) A combination of a management fee based on AUM and a performance
fee based on profits (e.g., "2 and 20").
d) A commission-based structure per transaction.
Answer: c) A combination of a management fee based on AUM and a
performance fee based on profits (e.g., "2 and 20").
,4. Question: A "high-water mark" in a hedge fund fee structure refers to:
a) The highest level of assets under management achieved by the fund.
b) The highest cumulative net profit the fund has achieved, above which a
performance fee will be charged.
c) The minimum return required before a performance fee is charged.
d) The maximum fee that can be charged by the fund.
Answer: b) The highest cumulative net profit the fund has achieved,
above which a performance fee will be charged.
5. Question: Which of the following is a common hedge fund strategy that
aims to profit from relative mispricing between related securities?
a) Long/short equity
b) Global macro
c) Event-driven
d) Market neutral
Answer: d) Market neutral
6. Question: A hedge fund strategy that involves taking long positions in
undervalued equities and short positions in overvalued equities within
the same sector is known as:
a) Global macro
b) Dedicated short bias
c) Long/short equity
d) Managed futures
Answer: c) Long/short equity
7. Question: Private equity investments primarily involve:
a) Investing in publicly traded companies with small market capitalizations.
b) Investing in companies that are not listed on a public stock exchange.
c) Lending money to private individuals for real estate ventures.
d) Trading in privately issued debt securities.
Answer: b) Investing in companies that are not listed on a public stock
exchange.
8. Question: A leveraged buyout (LBO) is a type of private equity
transaction where a company is acquired using:
a) Primarily equity financing.
, b) A significant amount of borrowed funds (debt).
c) Only the existing cash reserves of the acquiring firm.
d) A combination of equity and publicly traded bonds.
Answer: b) A significant amount of borrowed funds (debt).
9. Question: Venture capital is a type of private equity that focuses on:
a) Investing in mature, established companies.
b) Providing debt financing to small businesses.
c) Investing in early-stage, high-growth potential companies.
d) Acquiring and restructuring underperforming companies.
Answer: c) Investing in early-stage, high-growth potential companies.
10.Question: Which of the following is a common exit strategy for private
equity firms?
a) Holding the investment indefinitely.
b) Regularly trading the company's shares on a private exchange.
c) An initial public offering (IPO) or a sale to another company.
d) Distributing the company's profits as dividends to the private equity firm.
Answer: c) An initial public offering (IPO) or a sale to another
company.
11.Question: Real estate as an alternative investment includes:
a) Only residential properties.
b) Only commercial properties.
c) Land, residential properties, commercial properties, and infrastructure.
d) Only publicly traded real estate investment trusts (REITs).
Answer: c) Land, residential properties, commercial properties, and
infrastructure.
12.Question: Which of the following is a direct investment in real estate?
a) Buying shares in a REIT.
b) Investing in a real estate mutual fund.
c) Purchasing a commercial building.
d) Lending money secured by a mortgage.
Answer: c) Purchasing a commercial building.
