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

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selection bias (self-reporting bias)- backfill bias (they improve their historical performance once they reported it)- survivorship bias

• Fixed income arbitrage HF strategy
• Hedge fund returns are distributed how
• Hedge fund performance reporting suffers from
• LBO Model has three main inputs

- long convertible bond, short equity- long volatility and long credit spreads (when they tighten, bond values increase)

• Risk arbitrage HF strategy
• Event driven HF strategy
• Convertible bond arbitrage HF strategy
• Fixed income arbitrage HF strategy

- uses a WACC as an estimate of the market capitalization rate- adds a sinking fund factor to the debt cost

• Capitalization rate
• Event driven HF strategy
• Managed futures HF strategy
• Band of Investment Method (BOI)

- distressed debt (long and short in different securities of issuer)

• Event driven HF strategy
• Arbitrage based HF strategy
• Directional HF strategy
• Risk arbitrage HF strategy

- Measures the LP's unrealized return is the value of the the LP's holding in the fund divided by the cumulative invested capital- TVPI (both DPI and RVPI) is net of fees

• Capitalization rate
• LBO Model has three main inputs
• RVPI (residual value to paid-in capital)
• DPI (distributed to paid-in capital)

- market neutral, but not necessarily a zero beta- can adjust beta for when market moves

• Medium volatility HF strategy
• Managed futures HF strategy
• long-short equity HF strategy
• Event driven HF strategy

- matches long and short positions; make money slowly- short volatility- lowest STD and highest sharpe ratio

• Arbitrage based HF strategy
• Risk arbitrage HF strategy
• Directional HF strategy
• Managed futures HF strategy

Pure interst rate + liquidity premium + recapture premium + risk premium

• Capitalization rate
• Build-up method for valuing RE
• Private equity exit value
• Directional HF strategy

= r-g when evaluating RE- in times of inflation, g increases, thus market values increase

• Capitalization rate
• Directional HF strategy
• Event driven HF strategy
• Arbitrage based HF strategy

- makes active beds, no hedging

• Directional HF strategy
• Event driven HF strategy
• Arbitrage based HF strategy
• Risk arbitrage HF strategy

1. target's forecasted returns2. expected returns to the providers of the financing3. total amount of financing

• Arbitrage based HF strategy
• LBO Model has three main inputs
• Private equity exit value
• Build-up method for valuing RE

- long lower credit quality and short higher quality

• Fixed income arbitrage HF strategy
• Convertible bond arbitrage HF strategy
• Arbitrage based HF strategy
• Risk arbitrage HF strategy

- not normally or linearly- usually negative skewness and high kurtosis (fat tails)

• Managed futures HF strategy
• Hedge fund performance reporting suffers from
• Hedge fund returns are distributed how
• Event driven HF strategy

PRE + INV = POST

• LBO Model has three main inputs
• Post-money valuation of the firm in a PE deal is
• RVPI (residual value to paid-in capital)
• Medium volatility HF strategy