Top 100 Free Online CFA Level 1 Practice Questions on Alternative Investments

Top 100 Free Online CFA Level 1 Practice Questions on Alternative Investments is highly recommended for everyone thanks to thorough coverage throughout the key concepts in the CFA curriculum. CFA practice questions free are supplied with fundamental knowledge on this topic and highlights the all-important points for bettering learners’ exam prep. Like other CFA free test questions at our site, the test include exam-like multiple choice questions with clear answers which make your score marked by a “submit” clicking at the bottom of the page. You can check and take note incorrect answers to fill up your missing knowledge, find out your weaknesses and get your proficiency in alternative investments. For sure, you’ll feel comfortable with the real exam once taking this test. Hope you fancy with it!
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Sharp ratio assumes:1) normality (s.d. not valid for skewed distributions)2) liquidity (downward bias in s.d.)3) uncorrelated returns (autocorrelation produces downward bias in s.d.)4) time dependency (return/s.d. annualized; as holding period incr., sharpe ratio incr.5) Sharpe ratio is a stand-alone measure6) managers can manipulate the inputs7) little power to predict hedge fund winners

• What are the 5 special issues in hedge fund evaluation?
• What are the limitations of using sharpe ratio to measure hedge fund performance?
• What is the most common compensation structure of hedge funds?
• What are the special due dilligence concerns for hedge funds?

*low liquidity*large lot sizes*high transaction costs*low mobility*asymmetric information in transactions

• Direct investments in real estate generally have what high level characteristics?
• What are the main private equity benchmarks and how are they constructed?
• Both interest rate and commodity swap values change when?
• What are the main commodity benchmarks and how are they constructed?

*exploit price discrepancies through long and short positions with the goal of no systematic risk

• What is fixed-income arbitrage investing?
• What is equity market neutral investing?
• What is global macro investing?
• What is merger arbitrage investing?

*manager shoudl have goals other than simply earning a gross return

• What are the 2 major biases found in hedge fund benchmarks?
• What are some of the major drawbacks of hedge fund benchmarks?
• Why is there some controversy concerning hedge fund incentive fees?
• What are the special due dilligence concerns for hedge funds?

*repricing occurs infrequently which results in dated values

• What are the 2 major biases found in hedge fund benchmarks?
• What are the major baises of commodity benchmarks?
• What are the major biases of private equity benchmarks?
• What are the different stages of private equity investing?

1) Absolute return vehicles (no benchmark, diff. to determine alpha, can use multifactor models to mimic)2) Conventions (longer lockups outperform; younger/smaller funds outperform)3) Returns affected by: entry/exit of investors, trading freq., annualized monthly returns4) Leverage (for eval, treat each asset as if it was all cash)5) Downside deviation (should not be punished for upside returns)

• What are the 2 major biases found in hedge fund benchmarks?
• What are the general characteristics of commodities?
• What are the major baises of commodity benchmarks?
• What are the 5 special issues in hedge fund evaluation?

a limited partnership

• What are the common features of alternative investments?
• What is the role of alternative investments in a portfolio?
• What is the main role of managed futures in a portfolio?
• What is the primary legal structure of most managed futures in the US?

Real Estate = return (similar); diver (good)Private Equity = return (high); diver (low)Commodities = return (low); diver (good)Managed futures = return (similar); diver (moderate)Distressed securities = return (high); diver (high)Hedge fund = return (varies); diver (varies)

• Describe the return compared to 50/50 stocks and bonds and potential for diversification of the various alternative investment classes
• What are the main managed futures benchmarks and how are they constructed?
• What are the main issues to consider in private equity investing?
• What are the 5 special issues in hedge fund evaluation?

*the spot return (aka price return)*the collateral return (aka collateral yield)*roll return (aka roll yield) = movement in futures price not explained by movement in spot price

• What is the roll return in backwardation and contango?
• What are the return components in a commodity futures contract?
• What are the risk/return and liquidity features of real estate?
• What are the major baises of commodity benchmarks?

Amortizing = NP declines over life of swapAccreting = NP increases over life of swap

• What is the difference b/t an amortizing and an accreting swap?
• What is the difference b/t a direct or an indirect private equity investment?
• What are the different types of distressed securities investing?
• What is the main role of managed futures in a portfolio?