46 CFA Level 2 Mock Exam Free Questions and Answers on Alternative Investments

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Gives management the right to purchase more shares of equity upon sale by the PE owners to an acquirer.

• Post Money Value
• Tag along, Drag along
• Agency Risk
• Discount Rate

Age of the fund.

• Vintage
• TVPI
• Ratchet
• PIC

= (NOI - depreciation - Interest)*(Investor's Marginal Tax Rate)

• CFAT_Taxes Payable Calculation
• Carried Interest_Calculation
• Recaptured Depreciation
• Recaptured Depreciation_Calculation

1. Carried interest is paid after ENTIRE COMMITTED capital is return.2. Carried interest is paid after portfolio exceeds INVESTED capital by specified amount.

• Carried Interest
• VC Valuation Method
• Income Property_IRR Method
• Total Return Method

NOT subject to the the same biases as hedge funds.1. Selection2. Survivorship3. Backfill/Instant History

• Fund of Fund Bias Risk
• Agency Risk
• Sinking Fund Factor
• Carried Interest

Debt service = annualized monthly payments made to pay off debt. In essence it =1. Monthly Payment * 12OR2. PV = Value of Loan, FV = 1, t = monthly terms (specified by loan contract) SOLVE FOR PMT. multiply by 12!

• CFAT_Taxes Payable Calculation
• Cash Flow After Tax (CFAT)
• Cash Flow After Tax (CFAT)_Calculating Debt Service
• Carried Interest_Calculation

1. Discounted CF- companies with significant operating history2. Relative value/market approach- requires predictable CF and significant history3. Real option analysis- immature firms with flexibility in future4. Replacement cost- NOT applicable to mature firms w historical costs difficult to measure5. Venture Capital/LBO

• VC Valuation Method
• VC Valuation Method_NPV Method
• Private Equity Valuation Methodologies
• VC Valuation Method_ownership %

DCF- Buyout typically uses this, VC not so much because CF are uncertainRelative Value- Buyout used to check DCF, VC not so much because no compsUse of Debt- Buyout = high, VC = equity is dominateKey Drivers of Equity Return- Buyout= earning growth, increase in multiple and reduction of debt. VC=Pre money valuation, investment and subsequent dilution

• Total Return Method
• Buyout vs Venture Capital
• Hedge Fund Return Pattern
• Post Money Value

Weighted average cost of capital. Appropriate for properties that used both Debt and Equity Financing. Must include a sinking fund factor .

• Income Property_Capitalization Rates- Band of Investments
• Income Property_Capitalization Rates- Market Extraction
• Income Property_Capitalization Rates
• Income Property_Capitalization Rates- Build up

Capital Gains Tax Rate 1. Determine the sales price - cost to sell2. Determine book value of the property = purchase price - depreciation3. If book value < net selling price, take back depreciation. This is Recapture Depreciation and is multiplied by depreciation tax rate4. Remainder of gain is taxed at the CAPITAL GAINS TAX RATE of investor

• Income Property_Tax Liability Calculation at Time of Sale
• Income Property_Valuation- Direct Income
• Income Property_Capitalization Rates- Build up
• Income Property_Capitalization Rates

Negative SkewnessPositive Kurtosis

• Recaptured Depreciation
• Hedge Fund Return Pattern
• Discount Rate
• Total Return Method