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40 QUESTIONS

TIME: 60MINS

LEVEL I MID TEST

ALTERNATIVE

INVESTMENTS

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120. A commodity market is in contango if the spot price is:

A. higher than futures prices.

B. equal to futures prices.

C. lower than futures prices.

119. Because of survivorship bias, hedge fund data are

most l k ly

to:

A. overstate returns and overstate risk.

B. overstate returns and understate risk.

C. understate returns and overstate risk.

117. With respect to mezzanine-stage financing in venture capital investing

and mezzanine financing of a leveraged buyout:

A. mezzanine-stage financing refers to a type of security but

mezzanine financing does not.

B. mezzanine financing refers to a type of security but mezzanine

stage financing does not.

both terms refer financing by issuance of securities that have both

debt and equity characteristics.

118. An investor in a hedge fund that holds some thinly traded securities

is wondering about how the net asset value is calculated for the hedge

fund s financial statements. He should know that on the financial

statements, net asset values are most l k ly calculated using the:

A. average of the bid and ask for traded securities.

B. bid for short positions and the ask for long positions.

C. average quote for traded securities less a liquidity discount.

116. Regarding the main types of leveraged buyouts LBOs), in a

management buy-in:

A. the existing management team is involved in the purchase.

B. an external management team joins the existing management team.

C. an external management team replaces the existing management

team.

1.

2.

3.

4.

5.

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120. Assume most hedge funds have a 2-and-20 fee structure and most

funds of funds have a l-and-l0 fee structure. Over a long,investment

horizon, compared to net returns from investing directly In hedge

funds, net returns from investing in funds of funds are most lik ly to

be:

A. lower.

B. higher.

C. the same.

119. A long-only commodity index investment is most lik ly to:

A. perform poorly in inflationary periods.

B. have a high correlation with equity returns.

C. be implemented by using derivatives.

118. The period of time during which a private equity fund will select

investments and direct committed capital to them is st described as

A. notice period.

B. lockup period.

C. drawdown period.

117. A hedge fundthat engages primarily in distressed debt investing and

merger arbitrage is st described as using a n :

A. macro strategy.

event-driven strategy.

C. relative value strategy.

116. For the valuation of real estate investment trusts REITs , the asset

based approach estimates value by:

A. subtracting recurring capital expenditures from funds from

operations.

B. adding depreciation, subtracting gains

ro

property sales, and

adding losses on property sales.

C. subtracting total liabilities from the total value of the real estate

assets and dividing by the number of shares outstanding.

6.

7.

8.

9.

10.

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117. The gold futures market is said to be

in

contango if prices for gold

futures are currently:

A. equal to the spot price.

B. less than the spot price.

C. greater than the spot price.

118. An investment in a hedge fund with a 2 and 20 fee structure has

increased in value each period and earned a return of 8 net of

management fees

in

20x7. Under which of the following provisions

would incentive fees for 20x7 be the highest?

A. 5 hard hurdle rate and a high water mark provision.

6 soft hurdle rate and a high water mark provision.

C. 7 hard hurdle rate and no high water mark provision.

119. An analyst using the comparable sales approach to value a real estate

property should:

A. consider the most recent sale price of the property.

B. determine an appropriate discount rate for future cash flows from

the property.

C. adjust for differences between this property and others that have

been sold recently.

120. A leveraged buyout fund is evaluating Siena Company relative

to its peer companies. Siena is most l k ly a good candidate for a

management buy in if it has:

A. higher cash flow and less capable managers than its peers.

B. lower cash flow and more capable managers than its peers.

C. higher cash flow and more capable managers than its peers.

116. Which of the following is most l k ly tobe a characteristic of

alternative investments?

A. Passive management.

B. Less efficient pricing than traditional investments .

.C. High correlations with the returns of traditional investments.

11.

12.

13.

14.

15.

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120. Which of the following characteristics most lik ly applies to private

equity investing?

A. Liquid secondary market.

B. High degree of reliance on manager skill.

C. Relatively short term. investment horizon.

119. The effect of survivorship bias on hedge fund risk and returns from

historical results is to overstate:

A. both risk and expected returns.

B. expected returns and understate risk.

C. risk and understate expected returns.

118. An investor who is limited to buying equity shares but is interested in

gaining exposure to commodity prices can st achieve this exposure

by buying:

A. managed futures funds.

_.B. commodity index exchange traded funds.

C. equities of firms that produce commodities.

117. The value of an existing single family home used for residential

purposes will

most lik ly

be calculated using the:

A. cost approach.

B. income approach.

C. sales comparison approach.

116. Private equity fund investments are most lik ly to include:

A. real estate including residential and commercial properties.

B. unproven companies at various stages typically early in their lives.

C. physical commodities commodities derivatives and the equity of

commodity producing firms.

16.

17.

18.

19.

20.

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120. Which of the following alternative investments is most ppropri te for

a high net worth investor with a long time horizon and a requirement

for current income?

A. Venture capital.

B. Commercial real estate.

C. Multi-strategy hedge funds.

1I8. Measures of downside risk such as the Sortino ratio are most likely to

be more appropriate than standard deviation for measuring risk of a:

A. macro strategy fund.

B. real estate investment trust.

C. commodity exchange-traded fund.

119. Arkex Funds is a hedge fund with a value of 100 million at the

beginning of the year. Arkex Funds charges a 2.0 management fee

based on assets under management at the beginning of the year and a

20.0 incentive fee with a 5.0 hard hurdle rate. Incentive fees are

calculated net of management fees. The value of the fund at the end

of the year before fees is 110 million. The net return to investors is

closest to

A.6.8 .

B. 7.4

C.8.0 .

21.

22.

23.

24.

25.

26.

27.

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P age 1 75

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Afternoon Session

2014 K a pla n Inc

End ofAfternoon Session

120. Compared to the standard deviation ofretums on a repeat sales index

for a class of real estate properties, the standard deviation of returns on

an appraisal index for the same class of properties is most likely to be:

A. lower.

B. higher.

C. the same.

119. The stage of venture capital investing that involves product

development and market research is referred to as the:

A. seed stage.

B. early stage.

C. angel investing stage.

118. A hedge fund started the year with a value of El2S million. At year s

end the value before fees is ISO million. The fund charges 2 and 20

with management fees calculated on end-of-year values. Incentive fees

are n tof management fees and calculated using a 10 hard hurdle

.rate. Total fees paid for this year are losest to

A. 4.9 million.

B. 5.5 million.

C. 7.4 million.

28.

29.

30.

31.

32.

33.

34.

35.

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36.

37.

38.

39.

40.