CAIA FUNDAMENTALS WITH 100% CORRECT ANSWERS.

Which of the following structures transforms asset ownership into potentially distinct and diverse tradable investment opportunities? trading structure Which of the following structures refers to the financial markets related to a particular instrument, such as whether the investment is publicly traded on an exchange? Which of the following investments most likely has a long lock-up period with a fund life of ten years or longer? hedge funds managed futures private equity structured products private equity Which of the following statements is most true regarding the role of alternative investments in reducing portfolio risk? Portfolio risk declines most quickly when investors allocate to return diversifiers and correlations across assets are low Which of the following investments is most likely to employ short selling as a key part of the investment strategy? commodities mutual funds hedge funds private equity Hedge funds Which of the following best allows entities to transfer credit risk? collateralized debt obligations credit default swaps mezzanine debt funds fixed income arbitrage fnuds credit default swaps Which of the following facilitates increasing leverage in an investment fund? I. Borrowed funds II. Trading options and futures III. Investing in mortgage-backed securities IV. Investing the proceeds from short sales I, II, IV Which two of the following most correctly describe registered funds? I. Registered funds have greater liquidity than private placements II. Private placements have greater liquidity than registered funds III. Registered funds are only available to accredited investors IV. Registered funds are available to both retail and accredited investors I and IV Which of the following terms is best defined as returns that are to be evaluated relative to zero- or relative to the riskless rate - and therefore independently of performance in equity or debt markets? absolute return risk-free return benchmark return relative return absolute return Which of the following best describes the risk and return of short sales of equity securities? limited gains and potentially unlimited losses potentially unlimited gains and losses Limited losses and potentially unlimited gains Limited losses and gains limited gains and potentially unlimited losses Which of the following best describes benchmarking in the context of investments? the process of marking a portfolio to its most likely liquidation value process of adjusting investment performance for taxation or fees process of setting and applying a standard for performance process of calibrating a model to prices observed in liquid markets process of setting and applying a standard for performance Which of the following refers to the likelihood that the future returns of an investment will be similar in magnitude and risk to the returns observed in a sample? skewness representativeness heteroskedasticity autocorrelation autocorrelation Which of the following best describes a normally distributed return distribution? a distribution in which the right skew is twice the left skew a distribution with no outliers the returns form a parabola with probabilities increasing at an increasing rate returns form a bell-shaped diagram when they are plotted against profitability returns form a bell-shaped diagram when they are plotted against profitability Which of the following describes the return distribution of an asset with very high probabilities of very high and very low outcomes? high mean or asymmetrical low mean or platykurtic thin-tailed or mesokurtic fat-tailed or leptokurtic fat-tailed or leptokurtic Which of the following is the process of identifying and interpreting the components or determinants of an asset's performane? quantum analysis spectrum analysis return distribution return attribution return attribution Which of the following best describes the relationship between the return of an asset, a benchmark return, and active return? return of an asset (ROA) = benchmark return - active return ROA = benchmark return / active return ROA = benchmark return * active return ROA = benchmark return + active return ROA = benchmark return + active return Which of the following best describes the benchmark return that is calculated as an average of the returns from a collection of similar assets? total unanimity benchmark adjunct compilation benchmark similar profile benchmark peer group benchmark peer group benchmark Which of the following best describes an approximate interpretation of the standard deviation of the returns of an asset? the typical amount by which returns tend to vary from their mean the distance between the median and mode of a return distribution the maximum spread between any two returns in a sample the central level about which the returns tend to be equally distributed the typical amount by which returns tend to vary from their mean Which of the following best describes the Sharpe ratio? a measure of excess return per unit of risk as measured by standard deviation the point at which the return of a hedged portfolio becomes zero an optimum reached when additional risk generates no additional return the weights in a two-asset portfolio that generate the lowest risk a measure of excess return per unit of risk as measured by standard deviation Which of the following best contrasts the covariance and correlation coefficients? Covariances have magnitudes that are easily interpreted Covariance cannot be greater than 1 or less then -1 A correlation coefficient of 0 indicates perfect negative correlation A correlation coefficient of 1 indicates perfect positive correlation Covariance cannot be greater than 1 or less then -1 (?) Which of the following describes a spurious relationship? a relationship consistent with the null hypothesis rather than the alternative a relationship driven by multiple factors rather than a single factor a relationship consistent with theory rather than empircal and statistical analysis a relationship driven by coincidence rather than causality a relationship driven by coincidence rather than causality What is the purpose of using a multiple factor model rather than a single factor model? to explain idiosyncratic risk that emanates from a single source to explain idiosyncratic risk that emanates from several sources to explain systematic risk that emanates from a single source to explain systematic risk that emanates from several sources to explain systematic risk that emanates from several sources Suppose that two assets have returns that are large and positive when the economy is declining and are large and negative when the economy is rising. Which of the following best describes the correlation coefficient and covariances between the returns of these assets? the correlation coefficient is negative but the covariance is positive both the correlation coefficient and the covariance is positive the correlation coefficient is positive but the covariance is negative both the correlation coefficient and the covariance are negative both the correlation coefficient and the covariance is positive (?)