47 CFA Level 1 Online Mock Test Free Questions on Alternative Investments

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beta, driven by non-diversifiable market factors. Market risk. entire market or an entire market segment.

• What is Unsystematic risk?
• What is idiosyncratic risk?
• What is systematic risk?
• What is systemic risk?

linearly related to risk factors

• Returns for ND are?
• Var = 0, when?
• What is pure play?
• What is beta?

Have a thorough understanding of the risk factors underlying each fund.

• How to improve alpha estimation?
• What is an alpha driver?
• What is sharpe ratio?
• What is ex ante alpha?

Alpha drivers to create new investment opportunities (e.g. 130/30 long/short funds)

• What is product innovators?
• What is process drivers?
• What is passive investing?
• What is pure play?

1. determine assets -> underpriced or overpriced. Positive alpha = underpriced and cheap2. Measure skill of investor. Positive alpha = superior performance

• What is alpha?
• What is beta?
• Alpha is useful for?
• What is pure play?

value based on appraisals.assets are illiquid.returns are autocorrelated.

• non-normality returns are?
• High positive IRRs are?
• High negative IRRs are?
• Returns for ND are?

variances that change over time.

• What is systematic risk?
• What is sharpe ratio?
• What is Unsystematic risk?
• What is Heteroskedasticity?

forecast variances based on historical unexpected outcomes. The squared error is called the "ARCH term."

• ARCH Models
• Var = 0, when?
• What is beta?
• GARCH Models

passive investing (e.g. buy and hold strategy)

• What is pure play?
• What is beta?
• What is alpha?
• What is sharpe ratio?

likely to be larger for assets that are valued more often. MD likely to increase with the time period examined.favor managers with short track records and managers of sporadically valued assets.

• What is a beta driver?
• Describe maximum drawdowns.
• Describe Capital gains taxes
• Describe Normal Distribution

explain how investors should behave. best compared to positive models.

• What is an alpha driver?
• What is a normative model?
• What is systematic risk?
• What is a positive model?

correlation is significantly positive = skillcorrelation is low = luck

• ARCH Models
• What is alpha?
• Returns for ND are?
• Manager Skill vs Luck

Investments with nonlinear return distributions exhibit option-like payoffs.

• Alpha drivers vs beta drivers
• High positive IRRs are?
• Alpha is a zero-sum game if?
• Alpha drivers exhibit option-like payoffs are?

anticipated incremental return on an investment, after adjusting for time value of money and systematic risk. Indicative of managerial skill.

• What is alpha?
• What is ex ante alpha?
• What is pure play?
• What is sharpe ratio?

discrete compounding, simple returns do not follow a normal distribution.

• Advantage of continuous compounding is?
• What is a positive model?
• What is passive investing?
• Disadvantage of discrete compounding?

Beta drivers -> establish market exposure. Alpha drivers -> used to generate active returns.

• What is a beta driver?
• What is an alpha driver?
• What is process drivers?
• Alpha drivers vs beta drivers