Prévia do material em texto
©2021 AnalystPrep “This document is protected by International copyright laws. Reproduction and/or distribution of this document is prohibited. Infringers will be prosecuted in their local jurisdictions.” 1 Level I of the CFA® 2022 Exam Questions with Answers - Alternative Investments Offered by AnalystPrep Last Updated: Dec 16, 2021 We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 2 Table of Contents 47 - Introduction to Alternative Investments 3 We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 3 Reading 47: Introduction to Alternative Investments Q.27 A hedge fund is taking directional bets on currency strategies, interest rates strategies, and stock index strategies. This hedge fund is most likely a: The correct answer is: C) Global macro is an investment strategy based on the interpretation and prediction of large-scale events related to national economies, history, and international relations. The strategy typically employs forecasts and analysis of interest rate trends, international trade and payments, political changes, government policies, inter-government relations, and other broad systemic factors. Q.28 Which of the following statements is least likely correct regarding mortgage-back securities? The correct answer is: A) Commercial mortgage-backed securities are a type of mortgage-backed security backed by commercial mortgages rather than residential real estate and tend to be more complex and volatile than residential mortgage-backed securities due to the unique nature of the underlying property assets. A. market-neutral fund. B. long-short fund. C. global macro fund. A. Commercial mortgage-backed securities tend to be less volatile and complex than residential mortgage-backed securities. B. The risk of prepayment typically occurs in declining rate environments. C. When you invest in a mortgage-backed security, you are indirectly lending money to a homebuyer or business. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 4 Q.30 Which of these statements regarding Real Estate Investment Trusts (REITs) is least likely accurate? The correct answer is: A) REITs distribute the majority of their cash flows to investors, not to acquire additional properties. Most REIT revenues come principally from the rental income their properties generate, and REITs are traded on the major exchanges. Q.32 Hedge funds seek absolute return. Absolute return is a: The correct answer is: A) Absolute return is a measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital. It is not compared to a benchmark and does not take into account risk. Q.1074 Which of the following is not exhibited by alternative investments in comparison to traditional investments? The correct answer is: C) Alternative investments exhibit less liquidity of assets held in comparison to traditional investments. A. REITs keep the majority of their cash flows to acquire additional properties. B. Most REIT revenues come principally from the rental income their properties generate. C. REITs are traded on the major exchanges. A. measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital. B. measure of the gain or loss on an investment portfolio compared to a benchmark index. C. measure of the gain or loss on an investment portfolio compared to the amount of risk taken. A. More specialization by investment managers. B. Less regulation and transparency. C. More liquidity of assets held. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 5 Q.1079 Which of the following is least likely a terminology used to identify venture capital investment at different stages of a company's life? The correct answer is: B) The three stages used to identify venture capital investment at different stages of a company's life are the formative stage, the later stage, and the mezzanine stage financing. Mezzanine stage financing refers to the capital provided to prepare the firm for an IPO. It is usually the last stage in which venture capital investment takes place. Q.1081 Which of the following is a private equity exit strategy in which the portfolio company sells all or some shares to another private equity firm or a group of investors? The correct answer is: C) Under an Initial Public Offering (IPO), the company sells all or some shares to the public. Under a trade sale, a portfolio company is sold to a competitor or another strategic buyer. Under a secondary sale, a portfolio company is sold to another private equity firm or a group of investors. A. Formative Stage B. Middle Stage C. Later Stage A. Trade sale B. Initial Public Offering (IPO) C. Secondary sale We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 6 Q.1082 Which of the following is least likely to be used to value a real estate property? The correct answer is: C) The three approaches to valuing a property are the income approach, the comparable sales approach, and the cost approach. Q.1083 Which of the following forms of real estate investments are most likely to be publicly traded? The correct answer is: C) Real estate investment trusts (REITs) issue shares that trade publicly like shares of stock. Q.1084 The sources of commodities futures return can be best described to be from: The correct answer is: C) The three sources of commodities futures returns are roll yield, collateral yield, and change in spot prices. A. Income approach B. Comparable sales approach C. Asset-based approach A. Residential property B. Commercial real estate C. Real estate investment trusts (REITs) A. roll yield only. B. roll yield and collateral yield. C. roll yield, collateral yield, and change in spot prices. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 7 Q.1085 Direct commercial real estate ownership is least likely to include investment in: The correct answer is: B) Direct commercial real estate ownership includes investments in large amounts in illiquid assets and a long time horizon. Q.1215 Which of the following can be categorized as alternative investments? The correct answer is: C) Equity and T-Bills are types of traditional investments. Real estate investments are considered alternative investments. Q.1217 Richard Depp is a fund manager for MZJ Investments, a hedge fund investing in blue-chip stocks. What should Depp most likely include in his portfolio in order to decrease the portfolio's risk? The correct answer is: A) Real estate is a type of alternative investment. Alternative investments have a low return correlation with traditional investments, which is why it can be used to reduce the risk of the fund. A. large amounts. B. a short time horizon. C. illiquid assets. A. Alternative corporate common shares B. U.S Treasury Bills C. Real estate investments A. Real estate B. Tech firm equities C. Hospitality sector equities We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 8 Q.1218 Which of the following is leasta real possibility of a 100% loss of equity on individual investments. Option A is incorrect. Property values are subject to fluctuations in interest rates, and so this is a valid concern. Option C is incorrect. Investments in property development are subject to risks such as regulatory issues. These issues include the impact of environmental regulation. A. Inefficient management B. An average ability to generate cash flows C. Companies perceived as being in favor in the general market A. Fluctuating interest rates B. 100% loss of equity on individual investments C. Uncertain impact of environment regulation We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 53 Q.3318 Clock Limited is a hedge fund with a total asset base of $10 million. The fund charges a 2% management fee based on assets under management at year-end and a 20% incentive fee in excess of a 0.5% hurdle rate. During the first year, the fund appreciates by 15%. If incentive fees are calculated independently and management fees are calculated at year-end, the investor's return net of performance fees is closest to: The correct answer is: C) Fund value at year-end = $10 million * 1.15 = $11.5 million Management fees = $11.5 million * 0.02 = $0.23 million Hurdle amount = $10 million * 0.005 = $0.05 million Incentive fees = ($11.5 million - $10 million - $0.05 million) * 0.20 = $0.29 million Total fees paid to Clock Limited = $0.23 million + $0.29 million = $0.52 million Investor's net return = ($11.5 million - $10 million - $0.52 million)/$10 million = 9.8% Q.3319 According to the theory of storage, the return on a passive investment in commodity futures is expected to be equal to the: The correct answer is: B) According to the theory of storage, the return on a passive investment in commodity futures is expected to be equal to the convenience yield net of storage costs. A. 6.8%. B. 8.1%. C. 9.8%. A. roll yield. B. convenience yield net of storage costs. C. sum of collateral returns plus a risk premium. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 54 Q.3320 Investments in private equity are most suitable for investors with: The correct answer is: C) Investing in private equity requires considerable due diligence. Some of the features to investigate include the General Partner's experience and knowledge, the valuation methodology used, the alignment of the GP's incentives with the interests of the Limited Partners and so forth. Options A and B are incorrect. Investments in private equity require patience as there is a long time lag between investments in and exits from portfolio companies. Therefore, investors comfortable with long-term commitment of funds as well as liquidity are best suited to selecting asset class. Q.3321 One of the key reasons for the integration of alternative investments with traditional investments in a portfolio context most likely includes: The correct answer is: A) One of the reasons for including alternative investments in a portfolio of traditional investments includes the opportunity to improve the risk/return relationship within the portfolio context. The historically higher returns of alternative investments combined with portfolio risk reduction resulting from a less than perfect correlation between the asset category and traditional investments will result in an improvement of the overall risk-return tradeoff of the portfolio's Sharpe ratio. Option B is incorrect. An imperfect and negative correlation between alternative investments and traditional investments serves to reduce portfolio risk relative to a weighting of individual standard deviations. Option C is incorrect. When combining alternative with traditional investments, portfolio risk will reduce relative to the weighting of individual standard deviations due to the impact of correlation between the two (see above). This reduction will serve to increase the overall Sharpe ratio. A. high liquidity requirements. B. with a short-term time horizon. C. the ability to conduct due diligence. A. improved Sharpe ratio. B. attaining perfect correlation between the two categories. C. resulting portfolio risk is equal to the weighted average of individual standard deviations of asset classes. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 55 Q.3322 The shares of a real estate investment trust (REIT) frequently trade at prices which: The correct answer is: B) The shares of a REIT frequently trade at a discount or premium to the NAV observed in the market. Q.3323 The forward curve for gasoline futures is sloping upwards. This most likely indicates that: The correct answer is: C) When the forward curve is upward sloping, the market is in a state of contango. Option A is incorrect. When the futures market is in a state of contango, there is little to no convenience yield. However, it is not correct to state that the cost of carry is negligible. Option B is incorrect. The roll yield is the difference between the spot price and futures price of a contract. When the forward curve is upward sloping, the futures price is higher than the spot price, and the roll yield is negative. A. is equal to its NAV per share. B. differs from its NAV per share. C. is equal to its capitalized value per share. A. there is no cost of carry. B. the roll yield is positive. C. the futures market is in a state of contango. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 56 Q.3324 Which of the following statements most accurately compares the fee structure for real estate investment trust (REIT) funds to other alternative investment classes? The correct answer is: A) The fee structure for REITs investment funds is similar to private equity with management fees being charged based on committed or invested capital. Option B is incorrect. Fee structures for REITs are not subject to high water marks. Option C is incorrect. Similar to private equity, incentive fees are only paid to the GP after the initial capital is returned back to LPs. Q.3325 Which of the following statements correctly describes a fixed income convertible arbitrage hedge fund strategy? The correct answer is: B) A fixed income convertible arbitrage strategy is classified as a relative value strategy. Relative value funds seek to profit from a pricing discrepancy between related securities, i.e., mispricing between a convertible bond and its component parts (the underlying bond and the embedded stock option). Option A is incorrect. A fixed income convertible arbitrage strategy is a market-neutral (zero beta portfolio) strategy. Option C is incorrect. The fixed income convertible arbitrage strategy involves buying a convertible bond of one issue and simultaneously selling the issuer's common stock. A. Management fee is charged based on committed capital. B. Fee structures are subject to high water marks similar to hedge funds. C. Incentive fees are calculated based on profit before management. A. This strategy seeks beta-positive investment strategies. B. This strategy seeks to employ a pricing discrepancy between related securities. C. This strategy involves buying a convertible bond of one issuer while selling another issuer's common stock We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 57 Q.3326 Which of the following statements mostaccurately highlights risk measurement issues associated with alternative investments? The correct answer is: C) Standard deviation is not a relevant and reliable measure of risk given the illiquid nature of assets. The illiquid nature means that estimates, rather than observable transaction prices, may be used for valuation purposes thereby understating the volatility of returns. In addition, standard deviation ignores the diversification impact for a broad portfolio of managers and alternative investments. Option A is incorrect. The Sortino ratio is an appropriate measure of performance given that it uses downside deviation rather than standard deviation as a measure of risk. Downside risk measures focus on the left-hand side tail of the return distribution where losses occur. A measure of downside risk is preferred for alternative investments as returns tend to be leptokurtic, negatively skewed. Option B is incorrect. Sharpe ratios may not be the appropriate risk-return measure for alternative investments. These measures will be overstated due to the combined effect of smoothed (inflated) returns and an understated volatility of returns. Q.3327 The theory of storage asserts: The correct answer is: B) The theory of storage asserts that if the convenience yield is high enough to position the futures price below the spot price, the price of the futures contract will roll up to the spot price as the expiration date of the futures contract approaches. This price convergence earns the bearer of the futures contract a positive roll yield. Hedging pressure hypothesis - an alternative theory - suggests that the difference between the spot and futures price is determined by user preferences and risk premiums. A. Sortino ratios are meaningless. B. Sharpe ratios tend to be underestimated. C. Standard deviation may not be a relevant measure of risk. A. buyers of futures contracts forgo storage costs by not purchasing the commodity today. B. investors contract a positive roll yield as a result of convergence between the spot and futures price. C. that the difference between spot and futures prices is determined by user preferences and risk premiums. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 58 Q.3328 Graco Fund of Funds (FOF) invests $50 million each in the hedge funds, Lexor and Polygon. Graco FOF quotes a '2 and 20' free structure. The management fees are calculated based on asset values at year-end while incentive fees are calculated independently of management fees at year-end. At year-end, the value of investment in Lexor and Polygon was $45 million and $62 million, respectively. The investor's net-of-fees return is closest to: The correct answer is: A) The correct answer is A. CFA Level 1, Volume 6, Study Session 17, Reading 50 – Introduction to Alternative Investments, LOS 50b: Describe hedge funds, private equity, real estate, commodities, infrastructure, and other alternative investments, including, as applicable, strategies, subcategories, potential benefits and risks, fee structures, and due diligence. A. 3.46%. B. 3.89%. C. 7.00%. Value of investment at year-end= $45 million+$62 million = $107 million Initial investment value = $50 million+ $50 million= $100 million Management fee = $107 million× 0.02= $2.14 million Incentive fee = ($107 million−$100 million) ×0.20 = $1.40 million Total fees paid= $2.14 million+$1.40 million = $3.54 million Net-of-fees return = =0.0346 = 3.46% $107−$100− $3.54 million $100 million We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 59 Q.3329 In contrast to traditional investments, alternative investments: The correct answer is: A) In contrast to traditional investments, which have relative return objectives, alternative investments generate absolute returns and have historically demonstrated high mean returns. In addition, alternative investments are associated with a narrow manager specialization. Q.3330 A real estate appraiser is estimating the value of a real estate investment trust (REIT) which is composed of a portfolio of real estate properties. The appraiser begins the process by adjusting net income for depreciation charges and gains and losses from sales of real estate property. The resulting amount is capitalized into a value using a cap rate. The approach being used by the appraiser is most likely classified as a/an: The correct answer is: B) The technique being used by the appraiser is the income-based approach. This approach uses a cash flow measure as a proxy for income. This proxy is capitalized into a value indication using a cap rate. Two common measures of cash flows are funds from operations (which is the measure being calculated by the analyst) and adjusted funds from operations. A. generate absolute returns. B. have a broad manager specialization. C. have historically demonstrated low mean returns. A. asset-based approach. B. direct capitalization approach. C. comparables approach. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 60 Q.3331 A private equity firm is seeking to exit a company using a strategy that will provide a high valuation. However, the firm would like to retain the company's management team because it comprises of highly skilled and creative individuals. The firm would also like to remain one of the largest shareholders in the company. The exit strategy selected by the private equity firm should most likely involve selling shares to: The correct answer is: A) The private equity firm should rely on an IPO as an exit strategy. The approach involves the firm selling all or some of the shares to public investors in an IPO. The advantage of an IPO includes the potential to receive the highest price, management approval since they are retained, and the potential to retain future upside potential as the private equity firm may choose to remain a large shareholder. Q.3332 Which of the following is not a valid reason for investing in real estate? The correct answer is: C) Real estate property typically requires operational management. Therefore, this is one of the drawbacks to investing in real estate. Option A is incorrect. Real estate has the potential to provide an inflation hedge if rents can be adjusted quickly for inflation. Option B is incorrect. Another benefit of investing in real estate is that diversification benefits may be provided by less than perfect correlation with other asset classes. A. public investors. B. a strategic buyer. C. another private equity firm. A. Inflation hedging potential B. Likelihood of diversification benefits C. Limited involvement in the operational management of properties We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 61 Q.3333 The average Sharpe ratio of an investor's portfolio increased following the inclusion of alternative investments in a portfolio dominated by traditional investments. Which of the following factors is least likely attributed to the increase in the risk-return measure? The correct answer is: C) The increase in the portfolio's Sharpe ratio due to the inclusion of alternative investments can be attributed to illiquidity premiums, account leverage, and/or active managers' exploitation of less efficiently priced assets that serves to increase mean returns of alternative investments. Q.3334 The correlation between the returns of alternative investments and traditionalinvestments is understated as the former asset category is valued using: The correct answer is: B) Using appraised values rather than actual market prices to value alternative investments will lead to an understatement of the correlation between the returns of alternative investments and traditional investments. A. Account leverage B. Illiquidity premium C. Lack of transparency A. historical prices. B. appraised prices. C. extrapolated prices. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 62 Q.3335 A hedge fund activist strategy focuses on: The correct answer is: B) A hedge fund activist strategy focuses on the purchase of sufficient equity in order to influence a company's policies or direction. Option A is incorrect. A volatility strategy uses options to go long or short market volatility either in a specific asset class or across asset classes. Option C is incorrect. A special situations event hedge fund strategy focuses on opportunities in the equity of companies that are currently engaged in restructuring activities other than merger or bankruptcy. These activities include issuance repurchase. Q.3336 A portfolio manager is exploring alternative investments to include in his client's investment portfolio, currently dominated by stocks and bonds. Any alternative investment asset class selected will need to incorporate the fact that the client is subject to liquidity constraints. Which of the following alternative asset classes is least suitable for the client? The correct answer is: A) Hedge funds impose long lockup periods on investors thereby making the asset class inappropriate for the investor in question. Lockup periods tie the investor's funds for a stated period thereby reducing the liquidity of the investment. Option B is incorrect. Mortgage-backed securities represent publically traded commercial real estate debt and are relatively liquid. Option C is incorrect. Managed futures commodity funds represent actively managed investment funds. When these funds operate similarly to mutual funds, their shares are available to the general public. This increases the liquidity of the investor's holdings. A. using options to go long or short market volatility across a group of asset classes. B. securing a dominant position in the company to influence its policies and direction. C. the repurchase or issuance of securities of companies currently engaged in restructuring activities. A. Hedge funds B. Mortgage-backed securities C. Managed futures commodity funds operating as mutual funds We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 63 Q.3899 Capital provided by Venture Capital (VC) funds to companies that are prepared to go public and that represents a bridge between the expanding company and the IPO is known as: The correct answer is: C) Early stage financing or early stage venture capital may be provided to companies to commence commercial production and sales. Expansion venture capital is provided after commercial production and sales have begun but before IPO and may be used for initial expansion of a company already producing and selling a production or for major expansions. Mezzanine-stage financing or mezzanine venture capital is provided to prepare to go public and represents the bridge between the expanding company and the IPO. Q.3900 When a future price is below the expected spot price for a particular commodity, the market is most likely in: The correct answer is: B) Normal backwardation is the opposite of contango. Backwardation refers to a situation where the future price is below the expected spot price. A. Early stage venture capital. B. Expansion venture capital. C. Mezzanine venture capital. A. Contango B. Backwardation C. Premium buying We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 64 Q.3901 Which of the following is least likely a category of alternative investments? The correct answer is: A) ETFs, private equity funds, commodities, real estate, infrastructures and other investments like antiques, collectible, fine wines are categories of alternative investments. Q.3902 Brian Ross is a wealthy entrepreneur managing his own investment portfolio. He is seeking to expand his investment portfolio, which comprises solely of equities. Ross is seeking a tax- efficient investment, which has a moderate to high degree of liquidity and can bring diversification benefits to his portfolio. He is exploring direct real estate as a potential investment vehicle. Which of the following factors could discourage Ross from investing in direct real estate? The correct answer is: A) Direct real estate investments are illiquid and trade in very illiquid markets, making this form of an investment unsuitable for Ross, who desires an asset class with a moderate to high degree of liquidity. Investments in real estate are attractive because of the tax benefits that they generate. As an asset class, real estate has been found to have a low correlation with traditional asset classes, such as equity and fixed income securities; this introduces diversification potential to an investor’s portfolio. A. Supranational bonds B. Collectible C. Infrastructures A. Illiquidity B. Tax consequences C. Low diversification potential We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 65 Q.3903 A real estate agent is evaluating an apartment building using the income approach. He has gathered the following information for an apartment valuation: Operating expenses are a percentage of a gross rental income and exclude property taxes. The value of the apartment complex, estimated by the analyst, is closest to: The correct answer is: B) Similar to EBITDA, NOI represents the income to the property after deducting operating expenses, including property taxes, insurance, maintenance, utilities, and repairs but before depreciation, financing costs, and income taxes. Gross Annual Rent Income $670, 000 Insurance expenses $36, 850 Depreciation $12, 000 Property Taxes $30, 000 Income Taxes $28, 000 Maintenance $45, 000 Interest on financing $27, 000 Utilities $32, 000 Cap Rate 10% Growth Rate 3% A. 4,981,500 B. 5,261,500 C. 7,516,429 NOI = Annual property income −Insurance −Property taxes −Maintenance −Utilities– Repairs NOI = $670,000− $36,850 −$30,000 −$45,000 −$32, 000 = $526,150 Value of the property = = =$5, 261, 500 NOI Cap rate $526, 150 0.10 We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 66 Q.3904 Company A and Company B are trading at the Market value/EBITDA multiple of 10x and 8x, respectively. If the EBITDA of company C is $188 million, then the target market value of company C using the comparable approach is closest to: The correct answer is: B) Using the comparable approach, the average multiple of companies A & B is To calculate the market value, we will multiple EBITDA by the average multiple: Market value of company C = 9 $188 million = $1,692 million = $1.692 billion A. $1.692 million. B. $1.692 billion. C. $20.88 million. (10+8)/2 = 9. ∗ We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.comlikely a category of alternative investments? The correct answer is: C) ETFs, private equity funds, commodities, real estate and other investments such as antiques, collectibles, fine wines are categories of alternative investments. Q.1219 Having an upward bias in returns data because of the fact that we're including firms with better than average returns and excluding firms with bad performances is known as the: The correct answer is: B) The survivorship bias is described as having historical return data of only high performing firms while excluding data of bankrupt firms. Q.1220 Including those assets with low correlations of returns with traditional assets into the portfolio will most likely: The correct answer is: C) Alternative investments have a low return correlation with traditional investments, which is why they can be used to reduce the risk of the fund. A. ETFs B. Fine wines C. Eurobonds A. back fill bias. B. survivorship bias. C. performance bias. A. increase the risk of the portfolio. B. decrease the return of the portfolio. C. decrease the risk of the portfolio. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 9 Q.1221 Koch is an Istanbul-based hedge fund which performed 14% above the Bursa Istanbul 100 index returns. This measure of return is based on a/an: The correct answer is: A) Relative basis returns are based or compared to some specific benchmark. Q.1223 Identify the return of a hedge fund which is stated on an absolute basis. The correct answer is: A) An absolute basis return measure is based on absolute terms without any comparison to any benchmark. Q.1224 The manager of a typical limited partnership hedge fund is called a: The correct answer is: B) A hedge fund structured as a limited partnership must have a general partner. The general partner may be an individual or a corporation which serves as the manager of the limited partnership and has unlimited liability. The limited partners serve as the fund's investors and have no responsibility for management or investment decisions. Their liability is limited to the amount of money they invest for partnership interests. A. relative basis. B. absolute basis. C. index basis. A. The fund returned 18%. B. The fund returned 18% above the S&P 500 index. C. The fund has had an 18% return with a 31% standard deviation. A. limited partner. B. general partner. C. partnership manager. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 10 Q.1225 Restrictions on redemption of funds invested in hedge fund until the specific time during which withdrawals are not allowed is called a: The correct answer is: B) A lock-up period is a time during which withdrawals are not allowed for the investors. A hedge fund's high-water mark (HWM) ensures that the performance fee is only charged on new profits. Q.1226 An investment company that invests in a number of hedge funds to provide diversification to investors is called a/an: The correct answer is: A) Fund of funds invest in different hedge funds to further diversify the fund. It provides an opportunity to retail investors who can not invest in hedge funds. A. high-water mark. B. lock-up period. C. non-withdrawal period. A. fund of funds. B. asset management company. C. limited partnership. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 11 Q.1227 The strategy of purchasing the stocks of the company being acquired and short selling the stocks of the acquiring company is called a/an: The correct answer is: B) Merger arbitrage is the strategy of purchasing stocks of the company being acquired and short selling the stocks of the acquirer. Merger arbitragers speculate on the successful completion of mergers and acquisitions. An investor that employs this strategy is known as an arbitrageur. Risk arbitrage is a type of event-driven investing in that it attempts to exploit pricing inefficiencies caused by a corporate event. Q.1228 Anna Smith is a hedge fund manager who tries to exploit price discrepancies between convertible bonds and common stocks of companies. The strategy that Smith uses is most likely known as: The correct answer is: A) Convertible arbitrage fixed income is a strategy of exploiting pricing discrepancies between convertible bonds and common stocks of companies. A. opportunist strategy. B. merger arbitrage. C. distressed/restructuring strategy. A. convertible arbitrage fixed income. B. corporate arbitrage fixed income. C. equity market neutral strategy. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 12 Q.1229 Which of the following factor is not considered when selecting a hedge fund? The correct answer is: C) Since the hedge funds are not required by law to publish its financial data publicly, it is difficult to consider the financial data of hedge funds. Q.1232 Identify the term used for investors who invest in the 'idea' stage of new companies. The correct answer is: B) Angel investors invest in the 'idea' stage of start-up companies for the purpose of deriving business plans. Q.1233 Mezzanine stage financing is provided to new companies for the purpose of: The correct answer is: A) A mezzanine stage financing strategy provides funds to companies in order to prepare them for an IPO. A. Longevity B. Investment process C. Public financial data A. Venture capitalists B. Angel investors C. Seed investors A. covering expenses related to an IPO. B. conducting market research. C. developing a prototype. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 13 Q.1234 Private equity funds that buy the debt of mature companies facing potential default or bankruptcy proceedings are also referred to as: The correct answer is: C) Vulture investors use distressed investing strategies to invest in the debt of potentially defaulting companies. Q.1235 Which of the following is the appropriate name for the provision which requires managers to return periodic incentive fees if the investors received less than 80% of the profits generated by the fund? The correct answer is: A) A clawback provision requires managers to return periodic incentive fees if the investors received less than 80% of the generated profits. The compensation for the hedge funds firm is typically structured as a "2 and 20" fee where the "2" refers to the management fees charged, and the 20 refers to the carried interest on any returns above the preferred return. The clawback provision allows the limited partners to "claw back" any carry paid during the life of the fund on previous portfolio investments in order to normalize the final carry to the originally agreed percentage. Therefore, the clawback provision protects the LP's from paying a carry on one investment, and then having a subsequent investment incur losses. A. hedgers. B. venture capitalists. C. vulture investors. A. Clawback provision B. Loss reimbursement clause C. Committed capital clause We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 14 Q.1236 The private equity exit strategy of selling the portfolio company to another private equity firm or group of investors is called a/an: The correct answer is: B) In a secondarysale, one private equity company sells its portfolio company to another private equity firm or group of investors. Q.1237 Which of the following is least likely a valuation method for private equity portfolio companies? The correct answer is: C) Private equity firms use the discounted cash flow (DCF) method, the market approach, and the asset- based approach to value portfolio companies. Q.1238 Company A and Company B are trading at the Market value/EBITDA multiple of 10x and 8x, respectively. If the EBITDA of company C is $188 million, then the target market value of company C using the comparable approach is closest to: The correct answer is: B) Using the comparable approach, the average multiple of companies A & B is (10 + 8)/2 = 9. To calculate the market value, we will multiple EBITDA by the average multiple: Market value of company C = 9 * $188 million = $1,692 million = $1.692 billion A. initial public offering. B. secondary sale. C. trade sell. A. Discounted cash flow method B. Asset-based approach C. Cost-based approach A. $1.692 million. B. $1.692 billion. C. $20.88 million. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 15 Q.1239 A fund manager purchased a housing project which generates monthly income of $2 million in rents. Which of the following appropriately represents such property? The correct answer is: B) A real estate property which generates income during the investment period is called a commercial property. Q.1240 A real estate index that is based on changes in price of properties that are sold for multiple times is known as a/an: The correct answer is: B) A repeat sales index is based on changes in prices of properties that have been sold multiple times. A. Residential property B. Commercial property C. REITs A. appraisal index. B. repeat sale index. C. REITs index. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 16 Q.1241 Company A and Company B have market values of $700 million and $950 million respectively. EBITDA of Company A and B are $350 million and $400 million respectively. Calculate the market value of target company C using the comparable approach if the EBITDA of company C is $100 million. The correct answer is: B) Using the comparable approach average multiple of companies A & B is (2+2.375/2) = 2.1875x. To calculate the market value, we will multiple EBITDA by the average multiple (2.1875 * 100 = $218.75 million). Q.1242 Which of the following real estate valuation methods uses capitalization or cap rate to estimate the value of a company? The correct answer is: A) The income approach uses the capitalization rate, which is similar to a discount rate used to discount back net operating incomes. A. $200 million B. $218.75 million C. $228.85 million A. Income approach B. Comparable approach C. Cost approach We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 17 Q.1243 The cost approach is a real estate valuation method which estimates the replacement cost of a property by: The correct answer is: A) In real estate appraisal, the cost approach is one of three basic valuation methods. The others are market approach, or sales comparison approach, and the income approach. The fundamental premise of the cost approach is that a potential user of real estate won't, or shouldn't, pay more for a property than it would cost to build an equivalent. The cost approach estimates the replacement cost of a building by adding the cost of the land to the current cost of reconstructing the building. Q.1244 For the year 2015, a real estate investment trust has net income of $275 million, depreciation of $35 million, and a gain from the sale of a property of $110 million. The Funds From Operation (FFO) of the real estate investment trust for 2015 is closest to: The correct answer is: C) FFO = Net income + Depreciation - Gains from the sale of the property = 275 million + 35 million - 110 million = 200 million Explanation: FFO equals net income plus depreciation charges on real estate property less gains from sales of real estate property plus losses on sales of real estate property. Why add back depreciation? Accounting requires that all REITs depreciate their investment properties, but as is common, the property actually increases in value over time. This makes depreciation inaccurate in describing the value of a REIT. Depreciation and amortization must be added back to reconcile this issue. Why exclude gains and losses? These types of sales are considered to be nonrecurring. In most jurisdictions, REITs are required to channel over 80% of their taxable income toward the payment of dividends. Gains on property do not constitute taxable income. They should therefore not be included in the measurement of the value. A. adding the cost of land and the cost of reconstructing at the current cost. B. subtracting the current cost of reconstruction from the cost of the land. C. discounting the net operating income at the cap rate. A. $420 million. B. $130 million. C. $200 million. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 18 Q.1245 Which of the following instruments gives the right but not the obligation to a commodities investor to purchase the underlying commodities? The correct answer is: B) Options give the right but not the obligation to an investor to buy or sell the underlying commodities. Q.1246 Which of the following is not a real estate valuation approach? The correct answer is: A) Comparable sales approach, income approach, and cost approach are used to value real estate. Q.1248 Having physical commodities for use over the period of futures contracts is called: The correct answer is: B) A convenience yield has physical commodities for use over the period of futures contracts. A. Futures B. Options C. Forwards A. Asset-based approach B. Income approach C. Cost approach A. backwardation. B. convenience yield. C. commodities yield. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 19 Q.1249 A situation where futures prices are lower than the spot prices because of high convenience yields is most likely called: The correct answer is: A) In backwardation, the convenience yield is high, and futures prices are lower than the spot prices. Q.1250 Which of the following is least likely a source of commodities futures return? The correct answer is: C) The three sources of return on commodities futures are roll yield, collateral yield, and change in spot prices. Q.1251 If the spot price is $120, the risk-free rate is 5%, the storage cost is $20, and the convenience yield is $32, then the 1-year wheat futures price is closest to: The correct answer is: A) Future price = Spot price (1 + Risk-free rate) + Storage cost - Convenience yield = $120 * 1.05 + $20 - $32 = 114 A. backwardation. B. contago. C. roll yield. A. Roll yield B. Collateral yield C. Convenience yield A. $114. B. $58. C. $142. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 20 Q.1252 A rate used as a benchmark for calculating incentive fees for management when the returns are above a specific benchmark rate is called a/an: The correct answer is: B) A hard hurdle rate is when incentive fees are earned only on returns exceeding a pre-establishedbenchmark. On the other hand, a high water mark is simply the highest value that a hedge fund has ever reached. Q.1253 A hedge fund has a beginning year value of $200 million, 2% management fee, and 20% incentive fee with a hard hurdle rate of 10%. The fees are paid at the end of the period and the incentive fee is calculated net of management fee. If the ending value of the fund is $300 million, then the total fee of the hedge fund is closest to: The correct answer is: B) Management fee = $300 million * 2% = $6 million Incentive fee = ($300 million - $200 million - $6 million - ($200 million * 10%)) * 20% = $14.8 million Total fees = Management fee + Incentive fee = $6 million + $14.8 million = $20.8 million A. incentive fee rate. B. hard hurdle rate. C. high water mark. A. $18.8 million. B. $20.8 million. C. $14.8 million. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 21 Q.1254 Which of the following risk metrics measures the risk as downside deviation instead of standard deviation? The correct answer is: C) The Sortino ratio uses the downside deviation as its risk measure. This addresses the problem of using standard deviation since increased volatility is beneficial to investors. Q.1256 Which of the following alternative investment vehicles is the least transparent? The correct answer is: A) Private equity and hedge fund are the least transparent when it comes to publicly disclosing information. Q.1257 A hedge fund has a beginning year value of $370 million and a 2 plus 20 fee structure with no hurdle rate or water mark. The structure of the hedge fund is set up so that the incentive fee is calculated net of the management fee. If the ending value of the fund is $400 million, then the total fees paid to the hedge fund for the period is closest to: The correct answer is: A) Management fee = $400 million * 2% = $8 million Incentive fee = ($400 million - $8 million - $370 million) * 20% = $22 million * 20% = $4.4 million Total fees = Management fee + Incentive fee = $8 million + $4.4 million = $12.4 million A. Value at Risk (VaR) B. Sharpe ratio C. Sortino ratio A. Hedge funds B. Commodities futures C. REITs A. $12.4 million. B. $15 million. C. $16 million. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 22 Q.1258 Under the due diligence categories for alternative investments, ''reviewing of reporting'' and ''accounting methods'' are part of which of the following categories? The correct answer is: B) ''Reviewing of reporting'' and ''accounting methods'' come under the category of operations and control. Q.1259 Which of the following hedge fund strategies incorporates a top-down analysis approach based on global macro factors? The correct answer is: A) Macro hedge funds use a top-down strategy to analyze global macroeconomic factors. A. Fund terms B. Operations and control C. Risk management A. Macro hedge B. Equity hedge C. Global analysis We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 23 Q.1998 The cost approach for real estate most likely: The correct answer is: A) The cost approach for real estate uses replacement cost to determine real estate value. Note: Option B) is the sales comparison approach that estimates the value of a property based on the market value of a similar property. Option C) is the discounted after-tax cash flows approach that links the value of property to cash flows from the investment. Q.1999 Omar Henry, CFA, holds a majority position in Seven Star, a privately-held manufacturing company. Henry wants to estimate the value of his stake in Seven Star using the comparables approach. If Henry uses publicly-traded shares of another company as a benchmark value, he should add a premium for: The correct answer is: C) A liquidity and controlling interest premium would be applied to a benchmark to reflect the illiquidity of the privately held company and his majority position in Seven Star. Publicly traded shares represent minority interests. A. uses replacement cost to determine real estate value. B. estimates the value of a property based on the market value of a similar property. C. links the value of property to cash flows from the investment. A. liquidity only. B. controlling interest only. C. both liquidity and a controlling interest. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 24 Q.2000 An analyst gathered the following information regarding a fund: The net asset value (NAV) of the fund is closest to: The correct answer is: B) NAV = (Market value of assets - Liabilities)/No. of shares outstanding = 1.4 NAV = (1,000,000 - 300,000)/500,000 = 1.4 Q.2001 A venture capital has a 60% probability of failure during its seed stage, a 25% probability of failure during its formative stage, and a 10% probability of failure during its later stages. The project requires an initial investment of $1,000,000, and the cost of capital is 10%. Based on the project's conditional failure probabilities, the expected value of the payoff in five years is $2,700,000. The net present value (NPV) of the venture capital project is closest to: The correct answer is: C) NPV = [2,700,000 / (1.1)5] - 1,000,000 = $676,488 Note: The probability of failure has been taken into account in computing the expected value. Total shares outstanding: 500,000 shares Assets: $1,000,000 Liabilities: $300,000 A. $2. B. $1.4. C. $0.6. A. -$550,000. B. +$450,000. C. +$675,000. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 25 Q.2002 A hedge fund that engages primarily in distressed debt investing and merger arbitrage is most likely a/an: The correct answer is: B) Event-driven funds attempt to capitalize on unique opportunities such as distressed debt investing and merger arbitrage. Q.2003 When compared to a traditional mutual fund, an exchange-traded fund will most likely offer: The correct answer is: A) ETFs often track indices on which futures and options are available, which allows for better risk management compared to traditional mutual funds. ETFs are more transparent and face lower capital gains tax compared to traditional mutual funds. Q.2004 The leverage employed by a typical hedge fund may least likely: The correct answer is: B) Hedge funds' limited liability agreements, which are legally binding, typically specify the degree of leverage the funds may employ. Hedge funds create leverage by borrowing from external sources, trading in margin accounts with brokers and using derivatives that can be traded on margin instead of their underlying securities when those securities cannot be margined. A. long/short fund. B. event-driven fund. C. global macro fund. A. better risk management. B. less portfolio transparency. C. higher exposure to capital gains distribution taxes. A. be increased by using derivatives rather than the underlying securities. B. be legally unlimited since the typical fund is domiciled offshore. C. include margin borrowed from brokers and from external sources. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 26 Q.2005 If the futures market for a commodity is in backwardation, the roll yield will be: The correct answer is: B) When a futures market is in backwardation, positive roll yield occurs. For example,imagine that an investor holds 10 gold contracts and wants to buy 10 again for expiration at a later date. If the contract's future price is below the spot price, the investor is actually rolling into the same quantity of an asset for a lower price. Q.2006 The effect of the survivorship bias on hedge fund risk and returns from historical results is to: The correct answer is: B) Because poor performing hedge funds are most likely to fail, the survivorship bias causes returns to be overstated and risk to be understated. Q.2007 A highly risk-averse investor with a long time horizon is most likely to invest in which type of alternative investment? The correct answer is: C) A highly risk-averse investor will typically avoid hedge funds. Real estate funds, such as a commingled fund, offer a hedge against unexpected inflation. Investors in commingled fund investments benefit from economies of scale and diversification. A. zero. B. positive. C. negative. A. overstate both risk and expected returns. B. overstate expected returns and understate risk. C. overstate risk and understate expected returns. A. Global macro funds B. Market neutral funds C. Commingled funds We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 27 Q.2008 Supplying capital to companies that are just moving into operation but do not have a product or service available to sell yet'' is a description that best relates to which of the following stages of venture capital financing? The correct answer is: C) The description relates best to the early stage of financing where the capital that is supplied speeds up, provides development, and helps pay for the beginning of the market campaign. Q.2009 The creation and redemption of "in-kind" shares by authorized participants is a feature that is unique to which of the following types of securities? The correct answer is: A) Many ETFs require authorized participants to create and redeem shares in-kind - that is, to exchange ETF shares for a basket of securities, rather than cash. This allows the ETF to avoid selling securities to raise cash to meet redemptions, and thereby also prevents capital gains distributions. Additionally, when redeeming in-kind, an ETF can provide the authorized participant with the underlying securities with the lowest cost basis, further reducing the ETF's tax burden. A. Seed stage B. Second stage C. Early stage A. ETFs B. Closed-end funds C. Hedge funds We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 28 Q.2010 Which of the following statements about valuation techniques is least likely correct? The correct answer is: C) The income approach uses net operating income before financing and taxes. Q.2011 A company is considering a real estate investment that provides gross revenue of $250,000 and operating expenses of $15,000. The property costs $1,000,000, and the depreciation expense cost on the property is 2.6% of the cost in the first year and 1.3% of the cost over the next several years. The marginal tax rate is 35%. If the property is purchased without any debt, the after-tax cash flow in year 1 is closest to: The correct answer is: C) After-tax cash flow = (Revenue - Expenses - Depreciation)*(1 - t) + Depreciation = [250,000 - 15,000 - (1,000,000*0.026)]*(1 - 0.35) + (1,000,000*0.026) = 161,850 A. The cost approach to valuation is based on what it would cost to rebuild the property at today's prices. B. The sales calculation comparison approach to valuation is based on the sales price of properties similar to the subject property. C. The income approach to valuation calculates the property's value as the present value of its future annual after-tax cash flows, ignoring financing costs. A. $69,650. B. $129,350. C. $161,850. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 29 Q.2012 When a fund's performance is included in a database, its past performance is also recorded. Thus, only fund managers with superior track records are willing to disclose their performance and enter an index. This is least likely an example of: The correct answer is: A) Gaming refers to managers taking more risk to make up for past poor performance or refraining from taking risk to avoid damaging good past performance. Therefore, this is the LEAST likely answer out of the 3 choices. Q.2013 Commingled funds are most likely an example of: The correct answer is: C) A commingled fund is a fund consisting of assets from several accounts that are blended together. Investors in commingled fund investments benefit from economies of scale, which allow for lower trading costs per dollar of investment, diversification and professional money management. These types of funds are sometimes referred to as a ''pooled funds''. Q.2014 ETFs are most likely to charge: The correct answer is: C) In contrast to mutual funds, ETFs do not charge a load. However, they are traded on exchanges and subject to brokerage commissions. A. gaming bias. B. self-selection bias. C. backfilling bias. A. leveraged equity. B. free and clear equity. C. aggregation vehicles. A. back-end, but not front-end loads. B. front-end, but not back-end loads. C. neither back-end nor front-end loads. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 30 Q.2015 In an open-end fund: The correct answer is: B) In an open-end fund, investors can redeem their shares at the end of each business day at the net asset value (NAV). The net asset value is the value of mutual fund that is reached by deducting the fund's liabilities from the market value of all of its shares and then dividing by the number of issued shares. Q.2016 Later-stage financing most likely: The correct answer is: B) Later-stage financing refers to capital provided to fund major expansions, such as physical plant expansion, product improvement, or a major marketing campaign. A. shares are issued and are traded in secondary markets. B. investors can redeem their shares at the end of each business day at the net asset value (NAV) C. investors cannot redeem shares for a certain number of years that are specified at the initiation of the contract. A. finances the step of going public and represents the bridge between expanding the company and the IPO. B. refers to capital provided to fund major expansions. C. refers to funding for initiation of commercial operations. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 31 Q.2017 An analyst is interested in determining the value of a real estate investment using the income approach. He has gathered the following information: The value of the property is closest to: The correct answer is: B) The income approach to valuing real estate investments is simply Net operating income/Cap rate. The cap rate is the discount rate being used in the market to discount the NOI of comparable properties. Thus, the value of the property is: Value of the property = NOI/Cap rate = $50,480 / 0.11 = $458,909 Q.3273 Which of the following is a feature of alternative investments made via special vehicles such as private equity funds and hedge funds? The correct answer is: B) The management of alternative assets is almost always active. Option A and C are incorrect. Alternative investments through special vehicles are characterized by high fees, low diversification of managers,and investments within the alternative investment portfolio. Net Operating Income $50,480 Depreciation $3,550 Interest Expense $2,720 Tax Rate 35% Cost of Debt 8.20% Cost of Equity 12.50% WACC 9.60% Cap Rate 11.00% A. $403,900 B. $458,909 C. $466,500 A. Lower fees B. Active management C. High diversification within the alternative investment portfolio We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 32 Q.3274 The financing provided for 'developing business ideas' most likely takes place in the: The correct answer is: B) The angel investing phase is characterized by investments made early in a firm's life. These funds are often used to develop business ideas and to assess market potential. The source of funds is usually individuals (friends and family), these individuals are commonly referred to as "angels". Q.3275 The comparable approach using the EBITDA multiple is most appropriate for private companies that are: The correct answer is: B) The comparable approach using the EBITDA multiple is most appropriate for private companies that are large and mature in nature. Option A is incorrect. For other types of companies, such as young private companies, multiples of measures based on net income or revenue are most appropriate. Option C is incorrect. The asset-based approach using liquidation values is appropriate for companies in the process of liquidation. A. seed stage. B. angel investing phase. C. mezzanine-stage financing. A. young. B. mature. C. in the process of liquidation. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 33 Q.3276 Which of the following most accurately describes the direct form of real estate investment? The correct answer is: A) The owner may directly manage direct investments in real estate; the owner may actively manage the property. Option B is incorrect. Direct real estate investments represent a private form of investment. Option C is incorrect. The high transaction costs of direct investments in terms of broker. commissions require long-term investment horizons. Q.3277 An analyst is writing a report on timberlands and farmlands. He includes the following statements in his report: Statement 1: "Unlike timberlands, the primary return driver of farmlands is land price changes only." Statement 2: "A portfolio manager seeking to diversify his portfolio should seek to avoid timberlands." Is the analyst correct? The correct answer is: A) The analyst is incorrect with respect to both statements. Both timberlands and farmlands have three primary return drivers: harvest quantities, commodity prices, and land price changes. A portfolio manager seeking to diversify his portfolio should consider timberland as this asset class is not highly correlated with other asset classes. A. The underlying property can be managed actively. B. They represent a public form of real estate investment. C. Transaction costs are low. A. No B. Only with respect to Statement 1 C. Only with respect to Statement 2 We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 34 Q.3278 An analyst is appraising the value of an apartment complex. He begins with projecting future cash flows expected from the property over a ten-year period and discounting these cash flows at an appropriate discount rate. Included in these cash flows is the discounted value of the property's resale value at the termination of the project. Which type of cash flows is included in the project appraisal and which appraisal technique has been used by the analyst to determine the value? The correct answer is: A) The analyst is using the discounted cash flow approach to estimate the value of the property. The type of cash flows used in this technique is annual operating cash flows. A. Type of cash flows: Operating cash flows; Appraisal technique: Discounted cash flow. B. Type of cash flows: Operating cash flows; Appraisal technique: Comparable sales. C. Type of cash flows: Operating cash flows; Appraisal technique: Income approach. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 35 Q.3279 An investor with a small asset base and moderate financial wealth would like to invest in an alternative asset class which is liquid, provides opportunities for diversification, and requires minimal active involvement. The investor will most likely select a: The correct answer is: C) The investor will most likely select the common stock of a commodity-producing company for investment. Commodity investments provide the opportunity for diversification. Investments in commodity-producing companies allow small investors to invest little to moderate amounts of funds in these stocks. Furthermore, commodities are effective for portfolio diversification due to their low correlation with other asset classes. Also, publically traded common stocks can easily be sold and are relatively liquid. Option A is incorrect. Hedge funds generally impose restrictions on redemptions. Investors may be required to keep their money in the hedge fund for a minimum period (lockup period) and may be charged a fee to redeem their shares. This makes hedge fund investments a relatively illiquid form of investment. Furthermore, hedge funds are restricted to large, wealthy investors who can invest substantial sums of money. Option B is incorrect. Private equity funds require their investors to be patient. Private equity requires a long-term commitment from limited partners because of the long time lag between investments in and exits from portfolio companies. Thus, this is not a suitable investment alternative for investors averse to illiquidity. Q.3280 A hedge fund manager made the following statements regarding hedge fund fee structures. Statement 1: "The management fee is paid regardless of the firm's performance." Statement 2: "If a fund generates negative returns, it implies a zero incentive fee." Is he most likely correct regarding his statements? The correct answer is: A) Both statements are correct. The management fee is paid regardless of the firm's performance. Incentive fees can't be negative, so a negative return of the firm implies zero incentive fees. A. hedge fund. B. private equity fund. C. commodity-producing company's stocks. A. Yes, he is correct regarding both statements. B. No, he is incorrect regarding both statements. C. He is correct regarding one statement only. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 36 Q.3281 A real estate agent is evaluating an apartment building using the income approach. He has gathered the following information for an apartment valuation: *Operating expenses are a percentage of a gross rental income and exclude property taxes. The value of the apartment complex, estimated by the analyst, is closest to: The correct answer is: B) NOI = Annual property income - Operating expenses - Insurance - Property taxes - Maintenance - Utilities - Repairs NOI = $670,000 - $36,850 - $30,000 - $45,000 - $32,000 = $526,150 Value of the property = NOI/Cap rate = $526,150/0.10 = $5,261,500 Similar to EBITDA, NOI represents the income to the property after deducting operating expenses, including property taxes, insurance, maintenance, utilities, and repairs but before depreciation, financing costs, and incometaxes. Gross annual rental income $670,000 Insurance expenses $36,850 Depreciation $12,000 Property taxes $30,000 Income taxes $28,000 Maintenance $45,000 Interest on financing $27,000 Utilities $32,000 Cap rate 10% Growth rate 3% A. $4,981,500 B. $5,261,500 C. $7,516,429 We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 37 Q.3282 Which of the following statements accurately describes a typical private equity fund structure? The correct answer is: B) The most common type of structure for private equity funds is a partnership. Option A is incorrect. Fund investments are either unregulated or less regulated than offerings to the general public. Option C is incorrect. Because most investors are unwilling to bear unlimited liability, the GP is usually a limited liability corporation. Q.3283 When looking for a leveraged buyout (LBO) target, private equity firms will most likely look for companies which: The correct answer is: A) When looking for LBO targets, private equity firms will look for companies which: are inefficiently managed, have low leverage levels, have an undervalued or depressed stock price, have a strong and sustainable cash flow stream, and have a significant asset base. A. Its fund investments are highly regulated. B. Its most common type of fund structure is 'partnership'. C. Its general partner (GP) is usually an unlimited liability corporation. A. are inefficiently managed. B. have high leverage levels. C. have fairly valued stock prices. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 38 Q.3284 Distressed investing typically involves: The correct answer is: A) Distressed investing typically involves purchasing the debt of financially distressed companies at prices significantly less than the face value. Q.3285 Debt-based real estate investments most likely include: The correct answer is: C) Debt-based real estate investments include mortgage-backed securities (residential and commercial) and collateralized mortgage obligations. Q.3286 An investor interested in measuring the minimum amount of the loss expected over a given time period at a given probability level will most likely use: The correct answer is: A) Value at risk (VAR) measures the minimum amount of loss expected over a given time period at a given level of probability. A. purchasing the debt of financially troubled companies at prices significantly less than the face value. B. minority equity investment in mature companies that need capital to expand or restructure their operations. C. majority investment in a company by its own management before restructuring it operationally or financially. A. real estate limited partnerships. B. shares in real estate corporations. C. collateralized mortgage obligations. A. value at risk. B. shortfall risk. C. the Sharpe ratio. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 39 Q.3287 Mega Star Investment is a hedge fund with $550 million initial capital and a '2 and 20' fee structure. The 2% management fee is based on year-end assets under management and the 20% incentive fee is not independent of the management fee. The value of the fund at the end of year one is $652 million. The investor's net return is closest to: The correct answer is: B) Year-end fund value = $652 million Management fee = 2% * 652 = $13.04 million Incentive fee = (652 - 550 - 13.04) * 20% = $17.79 million Investor’s net return = (652 - 550 - 13.04 - 17.79)/550 = 71.17/550 = 12.94% Q.3288 The roll yield is negative for an investor when the market is in: The correct answer is: A) The roll yield is negative for an investor when the market is in "Contango." A. 12.47%. B. 12.94%. C. 15.31%. A. contango. B. backwardation. C. recession We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 40 Q.3289 Rosy Garcia is considering investing in a hedge fund or in a fund of funds. Garcia invests $50 million in the hedge fund and receives a yearly gross return of 10%. The fund has a '2 and 20' fee structure with no hurdle rate and management fees are calculated on an annual basis on assets under management at the beginning of the year. Incentive fees are calculated independently of management fees. Garcia also invests $60 million in a fund of funds (FOF) and earns a 5% yearly gross return. Assuming that the fund of funds fee structure is '1 and 10' and that all other fee structures in the FOF are similar to that of the hedge fund, the return to the investor of investing directly in the hedge fund will be: The correct answer is: A) For investing directly $50 million in the hedge fund: $50 million (10%) = $5 million profit Management fee: $50 million (2%) = $1 million gross profit Incentive fee: $5 million (0.20) = $1 million Total fees = $1 million + $1 million = $2 million Return: ($5 million - $2 million)/$50 million = 6% For investing $60 million in the FOF: $60 million (5%) = $3 million gross profit The FOF charges a fee of 1%: 60 million (1%) = $0.6 million and an incentive fee of $3 million (0.10) = $0.3 million Return: ($3 million - $0.6 million - $0.3 million)/$60 million = 3.5% So 6% - 3.5% = 2.5% A. 2.5% greater than the return generated by investing in the FOF. B. 2.3% greater than the return generated by investing in the FOF. C. 3.1% greater than the return generated by investing in the FOF. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 41 Q.3290 Bob Hagman has a stock and bond portfolio worth $400,000. For diversification purposes, Hagman plans to invest in real estate as part of his 'alternative investments' portfolio. Hagman does not know much about investing in this market, so he has decided to invest only a limited amount of money initially. The most appropriate investment vehicle for Hagman will be: The correct answer is: A) REITs issue shares that are typically publicly traded. They give investors access to a diversified real estate property portfolio and professional management. Most REITs also do not have a minimum investment requirement. Q.3291 In a commercial mortgage-backed security structure, the first loss on the collateral is most likely absorbed by the: The correct answer is: A) The equity owners are first to absorb losses in a commercial mortgage-backed security structure. A. REITs. B. real estate limited partnerships. C. commercial mortgage-backed securities. A. equity owners. B. unrated tranche. C. high-yield CMBS. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 42 Q.3292 Which of the following about real estate indices is most accurate? The correct answer is: C) REIT indices are not necessarily representative of the properties of interest to the investor. The other two options are incorrect. Q.3293 If an investor wishes to gain exposure to commodity markets while keeping his investment low and liquidity high, he/she should most likely invest in: The correct answer is: A) Managed futures funds that operate similarly to mutual funds are appealing to retail investors because of the professional management, low minimum investment, and relatively high liquidity. Q.3295 Julie Anderson is researching the European futures market. During her research, Anderson discovers that the oil futures market was in backwardation. The mostlikely explanation for this observation is that the: The correct answer is: B) Backwardation (futures prices being lower than spot prices) occurs when the convenience yield is high, or storage costs are low. In other words, the cost of carry is low. A. Properties that are included in a repeat sales index are biased towards those that have increased in value. B. If appraisals of properties are based on fundamental analysis done by experts, an appraisal based index will accurately reflect reality. C. REIT indices are often not representative of the properties of interest to an investor. A. managed futures funds. B. individual managed accounts. C. commodity partnerships. A. spot prices are high. B. the cost of carry for oil is low. C. convenience yield for oil is low. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 43 Q.3296 Which of the following strategies will most likely have the greatest alpha earning potential? The correct answer is: C) Concentrated portfolios invest in fewer assets and are less diversified. They have a high-alpha potential. Q.3297 The distinction between a single hedge fund and a fund of hedge funds is most likely that: The correct answer is: C) The distinction is not clear since many hedge funds invest in other hedge funds. Q.3298 Which of the following hedge fund strategies is the public equivalent of private equity investing? The correct answer is: A) Activist hedge funds are very similar to private equity investing. The difference is that these funds operate in the public equity market. A. Funds of funds B. Market segmentation C. Concentrated portfolios A. a fund of hedge funds invests in numerous hedge funds, but a single hedge fund never invests in other funds. B. a single hedge fund invests in numerous hedge funds, but a fund of hedge funds does not invest in other funds. C. a fund of hedge funds invests in numerous hedge funds, but a single hedge fund does not invest in other funds; however, the distinction is sometimes not very clear. A. Activist B. Distressed debt C. Merger arbitrage We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 44 Q.3299 Which of the following is least likely a characteristic of hedge funds? The correct answer is: C) A hedge fund is characterized by low diversification of investments. Q.3300 An alternative investment strategy that focuses on generating returns independent of market returns is best known as: The correct answer is: A) An absolute return strategy focuses on generating returns independent of market returns. Betas of funds using absolute return strategies should be close to zero. Q.3301 Which of the following is most likely a drawback of the fund of funds investing? The correct answer is: A) Funds of funds have mover favorable redemptions term. Also, FOF managers are the first to redeem their money when hedge funds start to perform poorly. A. Active portfolio management B. Narrow manager specialization C. High diversification of investments A. absolute return strategy since its beta is close to zero. B. concentrated portfolio strategy since it focuses on alpha generation only. C. market segmentation strategy since it invests exclusively in undervalued or overvalued stocks. A. Dilution of investor returns B. Less favorable redemptions terms C. FOF managers lose money fast when hedge funds start to perform poorly We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 45 Q.3302 Hedge Fund Cross and Hedge Fund Arrow Invest are in the same asset class and use a similar investment strategy. The exhibit below displays comparative data of the hedge funds. An investor is likely to invest in: The correct answer is: B) The Sortino ratio is an appropriate measure of performance given that it uses downside deviation rather than standard deviation as a measure of risk. Downside risk measures focus on the left-hand side tail of the return distribution where losses occur. A measure of downside risk is preferred for alternative investments as returns tend to be leptokurtic, negatively skewed. Q.3303 Private equity firms are most likely to invest in firms with: The correct answer is: C) Private equity firms invest in firms with strong and sustainable cash flows, willing management, and a high percentage of physical assets. Exhibit: Hedge Fund Characteristics HF Cross HF Arrow Size $300 million $650 million Returns 17% 13% Fees 1 and 15 2 and 20 Sortino Ratio 1.2 1.9 A. HF Cross because of higher returns. B. HF Arrow because of a higher Sortino ratio. C. Neither HF Cross nor HF Arrow because of a lack of accuracy of alternative investment data. A. weak cash flows. B. unwilling management. C. a high percentage of physical assets. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 46 Q.3304 Shawn Wiley has gathered some information about businesses in a foreign economy. The exhibit below displays data about the firms operating there. Based on the information above, the economy is likely to: The correct answer is: A) In a weak economic environment, liquidation values will most likely be far lower than the immediately previous fair values because there will be many assets for sale but few buyers. Q.3305 The adjusted funds of operating most likely adjusts the funds from operations for: The correct answer is: B) The adjusted FFO adjusts the FFO for recurring capital expenditures. Exhibit Fair Value (Dec 31, 2009) Fair Value (Dec 31, 20010) Firm A $150 million $60 million Firm B $175 million $100 million Firm C $320 million $90 million A. have entered a business cycle's low. B. achieve abnormal growth in the near future. C. experience an increase in the number of companies reporting at fair value. A. non-recurring gains and losses. B. recurring capital expenditures. C. non-recurring developmental expenditures. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 47 Q.3306 Which of the following is least likely a reason to invest in real estate? The correct answer is: A) Real estate investments provide diversification benefits by providing less than perfect correlation with the overall market trends. Q.3307 The exhibit below summarizes risk, return, and fee data for three market-neutral hedge funds: Which of the following funds is most suitable for investments? The correct answer is: B) To determine which fund is most appropriate for investment, the Sharpe ratio of the three funds is calculated as follows: Fund A = (15%-2%)/20% = 0.65 Fund B = (22%-2%)/26% = 0.77 Fund C = (9%-2%)/15% = 0.47 Fund B has the highest Sharpe ratio which means that it will enhance risk-adjusted performance. This fund is the most suitable from an investment perspective. A. To benefit from wider market trends B. To lessen the cash flow impact from economic shocks C. To get both income generation and capital appreciation Exhibit: Risk, Return and Fee Data for Three Market-Neutral Hedge Funds Fund A Fund B Fund C Risk-free rate 2% 2% 2% Annualized return 15% 22% 9% Annualized standard deviation 20% 26% 15% Fees 1.0 and 10 1.5 and 15 2.0 and 20 A. Fund A B. Fund B C. Fund C We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 48 Q.3308 High water marks serve to: The correct answer is: C) High water marks serve to prevent investors from paying twicefor the same performance. Option A is incorrect. High water marks reflect the highest cumulative return used to calculate an incentive fee, and it is the highest value, net of fees, that the fund has reached. However, the use of high water marks does not ensure that the fund achieves a specified hurdle rate. The hurdle rate is set based on a risk-free rate proxy plus a premium but may also be set as an absolute, nominal, or real return target. Option B is incorrect. High water marks specify the highest value that the fund has reached. This measure will be reset each time the value of the fund increases. However, it does not restrict the value of investments made in the fund. Q.3309 Which of the following statements is most likely correct regarding hedge funds employing absolute return strategies? The correct answer is: B) Theoretically, the beta of absolute return strategies should be close to zero as they seek to generate returns that are independent of market returns. With an absolute return strategy, there is no specific market index to beat. Option C is incorrect. The beta of funds using the absolute-return strategy tends to be close to 0. A. ensure that the fund achieves a specified hurdle rate. B. restrict the value of investments to a certain maximum. C. prevent investors from paying twice for the same performance. A. The potential for alpha is high B. There is no market index to beat C. The beta of the strategy is close to 1.0 We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 49 Q.3310 Right-Lance Capital is a hedge fund with $250 million as initial investment capital. A 2% management fee based on assets under management is charged at year-end, and a 20% incentive fee is charged on performance net of management fees. In the first year of operations, the fund earned a return of 16%. The investor's effective return given this fee structure is closest to: The correct answer is: A) Management fee = $250 million * 1.16 * 2% = $5.80 million Incentive fee = ($290 million - $250 million - $5.80 million) * 20% = $6.84 million Total fees to Right-Lance Capital = $5.80 million + $6.84 million = $12.64 million Investor's return = ($290 million - $250 million - $12.64 million)/$250 million = 10.94% Q.3311 An advantage to funds of hedge funds over single-layer hedge funds most likely includes: The correct answer is: C) An advantage of funds of hedge funds over single-layer hedge funds is that they provide access to hedge funds that may be otherwise be closed to direct investments. Option A is incorrect. The fee structure of funds of hedge funds is multi-layered. Such a structure has the effect of diluting returns to the investor thereby reducing investor returns. Option B is incorrect. Funds of hedge funds offer negotiated redemption terms that are more favorable (for example, a shorter lockup period and/or notice period). A. 10.94%. B. 11.20%. C. 12.50%. A. higher net returns for investors. B. more stringent redemption terms. C. ease of access to funds which may otherwise be closed to direct investments. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 50 Q.3312 When conducting due diligence for investing in hedge funds, an investor will need to consider several factors. Which of the following factors is most challenging to fully assess? The correct answer is: C) When conducting due diligence of hedge funds, the factor which is most challenging to assess is the investment strategy and process. This is because hedge funds may limit disclosure in order to maintain their competitive advantage and not give information away that is considered proprietary. Q.3313 An investor intends to earn an absolute return on an alternative investment category which is highly leveraged, employs long and short positions, and is characterized by low correlations with traditional investments. The investor will most likely opt for: The correct answer is: B) The investor will opt for hedge funds. This alternative investment category manages portfolios of derivatives and securities using a variety of strategies. They may employ long and short positions, are often highly leveraged, and aim to deliver a positive absolute return; that is, they aim to generate positive total performance regardless of broad market performance. A. Size B. Track record C. Investment strategy and process A. real estate. B. hedge funds. C. venture capital. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 51 Q.3314 Capital provided to companies which are beginning to operate but have not yet commenced commercial production and sales is classified as: The correct answer is: B) Early-stage financing is provided to companies moving toward operation but before commercial production and sales have occurred. Early-stage financing is classified as part of formative-stage financing. Q.3315 Which of the following characteristics is unique to the fee structure of private equity funds? The correct answer is: C) The clawback provision requires the GP to return any funds disturbed as incentive fees until the Limited Partners (LPs) have received back their initial investment and 80% of the total profit. This provision will ensure that investors' initial investments are returned back to them. Option A is incorrect. Until the capital invested is not fully drawn down, the management fee is based on committed capital, not invested capital. After the committed capital is fully invested, the fees are paid only on the funds remaining in the investment vehicle. Option B is incorrect. Most private equity partnerships include policies that prohibit distributions of incentive fees to the GP until the LPs have received back their initial investment. A. later-stage finance. B. formative-stage financing. C. mezzanine-stage financing. A. Management fees are paid on invested capital. B. The Genral Partner earns an incentive fee at the same time as investors receive their initial investment back. C. The clawback provision ensures the safe return of an investor's initial investment as well as his/her right to receive profit. We provide latest Study Material for CFA, FRM and Financial Modeling. Please drop us an email at guru.ghantal987@gmail.com © 2014-2021 AnalystPrep. 52 Q.3316 Which of the following characteristics will be considered as desirable by a private equity company seeking a target for an LBO (leveraged buyout)? The correct answer is: A) When selecting candidates for an LBO, a private equity firm will prefer companies that are inefficiently managed and that have the potential to perform better in the future. Firms will seek to generate attractive returns on equity by creating value in the companies they buy. Option B is incorrect. Companies that generate strong and sustainable cash flows are attractive in LBO transactions because the target company will be taking on a significant amount of dept. Therefore, the company should have cash flows to repay this debt in the future. Option C is incorrect. Private equity firms may focus on companies that are out of favor in public markets. Q.3317 Which of the following risks is least likely specific to investments in real estate property? The correct answer is: B) Although equity-investment real estate funds are subject to the risk of loss in value because they employ a high degree of financial leverage, they are unlikely to pose the risk of a 100% loss of equity on individual investments. For illiquid investments such as private equity or venture capital, there is
Mais conteúdos dessa disciplina
O Banco Central do Brasil é responsável por realizar a política monetária brasileira- Taxa Selic: Conceito e Impactos
- Política Monetária do Bacen
- teste 2 - nota 9 - mecanismos
- teste 1 - nota 9 - Mecanismos (1)
- Saylor vai ser liquidado?; a liquidez dos BCs acabou?; Galípolo merece elogio - Resumo
- Análise de cenários financeiros
- Teste 1 - Nota 10- Mecanismos de Financiamento ao Comércio Exterior
- 5
- 1
- Conforme o artigo 4° da lei das sociedades anônimas, a companhia é considerada aberta ou fechada conforme os valores mobiliários de sua emissão est...
- Assinale a alternativa correta. a. Para começar a investir em ações, não é necessário se cadastrar a uma corretora. b. A Comissão de Valores ...
- O sistema financeiro é uma estrutura complexa que desempenha um papel vital na economia, facilitando a intermediação entre agentes superavitários, ...
- Considere que um determinado gestor de fundos de investimentos, opte por formar uma carteira de investimentos, com os ativos "A" e "B", no qual pos...
- O Banco Central é uma instituição financeira fundamental em qualquer economia, desempenhando um papel central na formulação e execução das politica...
- O Banco Central é uma instituição financeira fundamental em qualquer economia, desempenhando um papel central na formulação e execução das politica...
- Assinale a alternativa falsa. Questão 6 Escolha uma opção: a. Um país com rating BBB apresenta redução na capacidade de honrar seus compromissos fi...
- Regulamentado pela CVM (Comissão de Valores Mobiliários) através da instrução normativa n.º 588 de 2017, é uma espécie de financiamento coletivo ba...
- A B3 divulga os principais índices negociados em seu mercado, fazem parte dos índices de governança: Questão 10Escolha uma opção: a. UTIL b. Ni...
- Qual das alternativas apresenta corretamente uma característica do Adiantamento sobre Cambiais Entregues (ACE)? Questão 5Resposta Só pode ser con...
- a ordem de compra ou venda a mercado(market order) garante a execuçãobpelo preço atual do book de ofertas é verdadeira
- Questão 8/10 - Contabilidade de Instituições Financeiras Ler em voz alta As operações de crédito fomentam e otimizam a produção, a circulação e o...
- Ler em voz alta O arrendamento mercantil, também conhecido como leasing, é uma operação de financiamento que viabiliza o acesso do empresário (arre...
- O que é economia
- 7._Bateria
