21 CFA Level 2 Practice Exam 2015 Questions and Answers on Alternative Investments

Don’t let Alternative Investments become your anxiety in the CFA exam. All your problems will be just like a breeze with our 21 CFA Level 2 Practice Exam 2015 Questions and Answers on Alternative Investments. Once test all the CFA level 2 exam sample questions covering the concepts about this topic, you completely gain basic grounding and improve professional skills before starting the actual examination. The most highlighted feature is free cost, sticking to the CFA curriculum and easy understanding in the nice layout. As such, you can stretch out your knowledge on alternative investments as well as speed up your learning process. In addition, each question is provided a correct answer in green at the end of the test so as to easily evaluate by yourself. Submit all after finishing to get the exact result. Hope you succeed in the upcoming exam!
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the GP has greater negotiating power

• Calculating payoff multiples and IRRs for equity investors
• The terms in a fund prospectus are a result of negotiation between...
• Calculating payoff multiples and IRRs for equity investors (2) answer
• If the fund is oversubscribed (has more prospective investors than needed)

RVPI = NAV after distributions / PIC!!LP unrealized return

• TVPI (total value to PIC)
• Exit value
• RVPI (residual value to PIC)
• PIC (paid-in capital)

the GP and the LPs

• The 2 most important terms are...
• How to arrive at a more realistic valuation for PE
• 6 ways to value private equity portfolio companies
• The terms in a fund prospectus are a result of negotiation between...

r2 = the compound discount rate between time T2 and T3 (TV: exit value)r1 = (1+R1)^Nr2 = (1+R2)^NPOST2 = FV/(1+r2)PRE2 = POST2 - INV2POST1 = PRE2 /(1+r1)PRE1 = POST1 - INV1f2 = INV2/POST2f1 = INV1/POST1sVC1 = Sfounders x (f1/(1-f1))p1 = INV1 / SVC1SVC2 = (Sfounders + SVC1) x (f2/(1-f2))p2 = INV2/sVC2

• Calculate valuation with single financing round
• Calculate valuation with multiple financing rounds
• Calculate valuation with single financing round (2)
• Valuation issues: buyout vs VC

(1) IPO (highest valuation)(2) Secondary market sale (2nd highest valuation)(3) Management Buyout (MBO)(4) Liquidation

• TVPI (total value to PIC)
• 3 sources of value creation in PE firms
• 4 typical exit routes for PE firms
• 8 economic terms of a PE fund

Transaction costs (due diligence, bank financing, legal fees from acquisitions, sales transactions)Investment vehicle fund setup costs (legal etc)Administrative costs (custodian, transfer agent, accounting costs)Audit costs (fixed and charged annually)Management and performance costs (2% management fee and 20% performance fee)Dilution costs (from additional rounds of financing)Placement fees (placement agents who raise funds for PE firms may charge up-front fees as much as 2% or trailer fees as a % of fund

• Company limited by shares...
• 3 sources of value creation in PE firms
• Costs of private equity investing
• Control mechanisms in PE

Limited Partners provide funding and do not have an active role in the management of the investments. They have limited liability

• PE fund terms...
• Limited Partnership
• General Partners
• Exit value