CAIA Practice Questions and Answers 100% Correct!

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 Private Equity: Closed-end funds with illiquid holdings Real Assets: Public real estate and public equities of corporations with performance dominated by stable positions in real assets 4 major methods of analysis that distinguish the analysis of alternative investments from trad. investments - ANSWER-Return Computation Methods, Statistical Methods, Valuation Methods, Portfolio Management Methods Define investment - ANSWER-Investment is any deferred consumption 4 major types of real assets other than land and other types of real estate - ANSWER-Natural Resources, Commodities, Infrastructure, and IP 4 return characteristics that differentiate trad. and alt investments - ANSWER-Diversification, Illiquidity, Inefficiency, Nonnormality Define Active Management - ANSWER-Refers to efforts of buying and selling securities in pursuit of superior combos of risk and return Define an incomplete market - ANSWER-Refers to lack of investment opportunities that causes market participants to be unable to implement an investment strategy that satisfices their exact preferences such as risk 4 major types of alt investments - ANSWER-Real Assets, HF, PE, Structured Products When did avg quality corp bonds and international equities become commonly viewed as institutional quality inv. in US? - ANSWER-Between 4 major legal documents necessary for establishing and managing a HF - ANSWER-Private-Placement memoranda, partnership agreement, subscription agreement, & management company operating agreement What is qualified majority? - ANSWER-More than 75% of LPs voting to make a decision What is Systematic Risk? - ANSWER-Risk in the potential for economy wide losses attributable to failures or concerns over potential failures in markets 3 constraints against achieving alternative investment benefits through liquid products - ANSWER-Leverage, Regulatory constrains on concentration, Illiquidity constraints