CAIA Exam 1 Chapter 1 Exam Questions With Verified Answers

Alternative investments - Answer Alternative investments are sometimes viewed as including any investment that is not simply a long position in traditional investments. Fixed-Income Securities - Answer A fixed income security is an investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Private equity - Answer Private equity is capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet. Private Debt - Answer Private debt is the debt accumulated by individuals or private businesses. Private debt can take numerous forms; a personal loan, credit card, corporate bond or business loan for instance. Traditional Investments - Answer Typically, traditional investments include publicly traded equities, fixed-income securities, and cash. For example, if a particular investment (such as private equity) is not commonly covered as equity in books on investing, then many people would view it as an alternative investment. Deferred Consumption - Answer Saving is income not spent, or deferred consumption. Investment - Answer A good definition of an investment is that it is deferred consumption. Any net outlay of cash made with the prospect of receiving future benefits might be considered an investment. So investments can range from planting a tree to buying stocks to acquiring a college education. Institutional Quality Investment - Answer is the type of investment that financial institutions such as pension funds or endowments might include in their holdings because they are expected to deliver reasonable returns at an acceptable level of risk. For example, a pension fund would consider holding the publicly traded equities of a major corporation but may be reluctant to hold collectibles such as baseball cards or stamps. Also, investments in very small and very speculative projects are typically viewed as being inappropriate for such an institution due to its responsibility to select investments that offer suitable risk levels and financial return prospects for its clients. Major Alternative Asset Catagories - Answer 38% hedge funds 30% Real Assets 29% Private Equity 3% Structured Products - Answer Furthermore, some of the investments on the list can be classified as traditional investments rather than alternative investments. For example, real estate and especially real estate investment trusts are frequently viewed as being traditional institutional-quality investments.