76 CFA Level 1 Practice Questions Free with Instant Answers on Alternative Investments

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strategy based on global macro economic trends, involve long or short positions in equities, fixed income, currencies, and commodities

• describe an event driven strategy of a hedge fund.
• describe a special situations strategy of a hedge fund.
• describe a macro strategy of a hedge fund.
• describe a relative value strategy of a hedge fund.

this is the funding a company receives when they are preparing for their IPO

• what does early stage refer to (in the context of VC)?
• what is the recapitalization (in the context of PE)?
• what is mezzanine stage financing? (in the context of VC?)
• what is mezzanine financing (in context of how PE firms finance an LBO)?

incentive fees are only earned when returns are in excess of the benchmark

• what is the lockup period when talking about hedge funds?
• what is a hard hurdle rate when talking about incentives for hedge fund managers?
• what is a high water mark when talking about incentives for hedge fund managers?
• what is a soft hurdle rate when talking about incentives for hedge fund managers?

when convenience yield is high and therefore futures prices are less than the spot price

• what is backwardation?
• What is a prime broker?
• What is survivorship bias?
• what is contango?

broker that a hedge fund trades through, can do short positions, take on leverage, and provide many other administrative services to their clients

• what is a vulture investor?
• What is a prime broker?
• what is backfill bias?
• what is backwardation?

exploit pricing discrepancies between convertible bonds and the common stock of the company

• describe a distressed / restructuring strategy of a hedge fund.
• describe an event driven strategy of a hedge fund.
• describe a relative value strategy of a hedge fund.
• describe a convertible arbitrage fixed income strategy of a hedge fund.

when a company issues debt to fund a dividend distribution to its current shareholders (not an exit but often a step towards an exit)

• what is the cost approach to value real estate?
• what are the benefits of investing in commodities?
• what is the recapitalization (in the context of PE)?
• what is later stage funding (in the context of VC)?

the yield due to a difference in the spot price and the futures price (as futures get closer and closer to expiration the price gets closer and closer to the spot price)

• what is an individual managed account in commodities?
• what is roll yield (talking about commodity futures)?
• What do you need to invest in a hedge fund?
• what is the lockup period when talking about hedge funds?

investing in companies with potential for massive growth

• what is a fundamental growth strategy?
• what is angel investing?
• what is a short bias strategy?
• what is a fundamental value strategy?

the upwards bias of returns if data for the existing (survival) firms that would be included

• what is backfill bias?
• what is backwardation?
• What is survivorship bias?
• what is the seed stage?

valuation of recent sales of similar properties, make adjustments for things such as age, location, condition, and size

• what is the comparable sales approach to value real estate?
• what is the equation for pricing a commodities future?
• what is the DCF approach to valuing a portfolio company in PE?
• what is a fundamental value strategy?

strategy based on a corporate restructuring or acquisition that creates a profit opportunity within the firm's capital structure

• describe a relative value strategy of a hedge fund.
• describe a special situations strategy of a hedge fund.
• describe an event driven strategy of a hedge fund.
• describe a distressed / restructuring strategy of a hedge fund.

in which the current management team of the company is involved in the buyout

• what is the notice period when talking about hedge funds?
• what is a fundamental growth strategy?
• what is a management buy-in (MBI) when talking about PE?
• what is a management buyout (MBO) when talking about PE?

investments made into a company for product development, marketing, and market research

• what is angel investing?
• what is the seed stage?
• What is a prime broker?
• what is backwardation?

it requires the fund manager to return any incentive fees that would result in investors receiving less than 80% of profits generated by portfolio investments as a whole

• what is backwardation?
• what is a clawback provision?
• what is a vulture investor?
• What is a prime broker?

the prices usually move in the direction of inflation, good way to hedge out inflation risk

• what are some of the risks of investing in commodities?
• what is the equation for pricing a commodities future?
• what are the benefits of investing in commodities?
• what are portfolio companies?

change management, management incentives, restructuring, cost reduction, or revenue enhancements

• what does market neutral mean?
• what is the comparable sales approach to value real estate?
• how do PE firms look to increase the value of a company?
• what is the cost approach to value real estate?

5 years

• what is the average holding period of a portfolio investment for a PE firm?
• what is the trade sale method of selling out of a portfolio investment (in the context of PE)?
• what is the recapitalization (in the context of PE)?
• what is the notice period when talking about hedge funds?