LEVEL I MID TEST

ALTERNATIVE
INVESTMENTS
40 QUESTIONS
TIME: 60 MINS

1.
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.

2.
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 mezzaninestage financing does not.
c. both terms refer financing by issuance of securities that have both
debt and equity characteristics.

3.
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 likely 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.

4.
119.

Because of survivorship bias, hedge fund data are most likely to:
A. overstate returns and overstate risk.
B. overstate returns and understate risk.
C. understate returns and overstate risk.

120.
5.

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.

6.
116.

For the valuation of real estate investment trusts (REITs), the assetbased approach estimates value by:
A. subtracting recurring capital expenditures from funds from
operations.
B. adding depreciation, subtracting gains from 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.
117.
7.

A hedge fundthat engages primarily in distressed debt investing and

merger arbitrage is best described as using a(n):
A. macro strategy.
B. event-driven strategy.
C. relative value strategy.

8.
118.

The period of time during which a private equity fund will select
investments and direct committed capital to them is best described as

a:
A. notice period.
B. lockup period.
C. drawdown period.

9.
119.

A long-only commodity index investment is most likely to:

A. perform poorly in inflationary periods.
B. have a high correlation with equity returns.
C. be implemented by using derivatives.

10. Assume most hedge funds have a 2-and-20 fee structure and most
120.
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 likely to
be:
A. lower.
B. higher.
C. the same.

11.
116.

Which of the following is most likely 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.

12.
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.

13.
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.
B. 6% soft hurdle rate and a high water mark provision.
C. 7% hard hurdle rate and no high water mark provision.

14.
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.

15.
120.

A leveraged buyout fund is evaluating Siena Company relative

to its peer companies. Siena is most likely 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.

Private equity fund investments are most likely 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.

117.

The value of an existing single-family home used for residential

purposes will most likely be calculated using the:
16. A. cost approach.
B. income approach.
C. sales comparison approach.

118.

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

gaining exposure to commodity prices can best achieve this exposure
17. by buying:
A. managed futures funds.
_.B. commodity index exchange traded funds.
C. equities of firms that produce commodities.

119. The effect of survivorship bias on hedge fund risk and returns from
18. historical results is to overstate:
A. both risk and expected returns.
B. expected returns and understate risk.
C. risk and understate expected returns.
120.

Which of the following characteristics most likely applies to private

equity investing?
19. A. Liquid secondary market.
B. High degree of reliance on manager skill.
C. Relatively short-term. investment horizon.

20.

21.

22.
1I 8. 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.
23.
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
24. 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%.
120.

Which of the following alternative investments is most appropriate for

a high net worth investor with a long time horizon and a requirement
for current income?
A. Venture capital.
B. Commercial real estate.
25. C. Multi-strategy hedge funds.

26.

27.

28.

Exam 3
Afternoon Session

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 netof management fees and calculated using a 10% hard hurdle
.rate. Total fees paid for this year are closest to:

A. 4.9 million.
29.
B. 5.5 million.
C. 7.4 million.
119.

The stage of venture capital investing that involves product

development and market research is referred to as the:
A. seed stage.
30.
B. early stage.
C. angel investing stage.

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.
31.B. higher.
C. the same.

End of Afternoon Session

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2014 Kaplan, Inc.

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