14 CFA Exam Level 1 Practice Questions Free Online

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Real Risk-Free Rate 2. Expected Inflation 3. Default-Risk Premium 4. Liquidity Premium 5. Maturity Premium

• The principle of time value of money
• The Five Components of Interest Rates
• Real Risk-Free Rate
• The stated annual rate

The notion that a given sum of money is more valuable the sooner it is received, due to its capacity to earn interest.

• The stated annual rate
• The Five Components of Interest Rates
• The principle of time value of money
• The effective annual yield...

= annuity payment A/interest rate r

• PV of a perpetuity
• PV
• Maturity Premium
• Liquidity Premium

= (1 + Periodic interest rate)^m - 1(Where: m = number of compounding periods in one year, and periodic interest rate = (stated interest rate) / m)

• The effective annual yield...
• The stated annual rate
• Expected Inflation
• Effective annual rate (EAR)

= PV * (1 + r)^N

• Liquidity Premium
• PV
• FV
• Maturity Premium

...quarterly, monthly, daily and even continuously.

• The principle of time value of money
• In practice, institutions compound interest more frequently, either ...
• The Five Components of Interest Rates
• The effective annual yield...

This assumes no risk or uncertainty, simply reflecting differences in timing: the preference to spend now/pay back later versus lend now/collect later.

• Default-Risk Premium
• PV of a perpetuity
• Real Risk-Free Rate
• Maturity Premium

What is the chance that the borrower won't make payments on time, or will be unable to pay what is owed? This component will be high or low depending on the creditworthiness of the person or entity involved.

• Default-Risk Premium
• Liquidity Premium
• Real Risk-Free Rate
• Maturity Premium

(or quoted rate) is the interest rate on an investment if an institution were to pay interest only once a year.

• The stated annual rate
• The effective annual yield...
• Expected Inflation
• Effective annual rate (EAR)

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Assets and liabilities increase by the bond proceeds +Interest expense is equal to the coupon payment+Proceeds are reported as cash inflow from financing activities and coupon payments are reported as cash outflows from operating activities+Repayment of principal is reported as cash outflow from financing activities

• Premium Bond Effects
• Par Value Bond Effects
• Revaluation Model
• Discount Bond Effects

+Reported on the balance sheet as above face value+As the premium is amortized the book value of the bond will decrease until it equals par value at maturity

• Recognition of DTA
• Premium Bond Effects
• Period Costs
• Discount Bond Effects

+Nature of liabilities+Maturity dates+Stated and effective interest rates+Call provisions and conversion privileges+Restrictions imposed by creditors+Assets pledged as security+The amount of debt maturing in each of the next 5 years

• Fixed Income Financial Statement Disclosures
• Inventory Disclosure
• Income Tax Expense
• Lease Disclosures

= Beginning Inventory + Purchases - Ending Inventory

• Derecognition
• Lease Disclosures
• Product Costs
• Cost of Goods Sold

A gain or loss is recognized by subtracting the redeem price from the book value of the bond liability at the redeem date;GAAP requires any remaining unamortized bond issuance costs must be written off and included in the gain or loss calculation;IFRS requires no write down since the legal and issuance costs have already been deducted

• If Company Redeems Bonds
• Temporary Difference
• Income Tax Expense
• Affirmative Covenants

+Less costly financing+Reduced risk of obsolescence +Less restrictive provisions+Off-balance-sheet financing+Tax reporting advantages

• Sales-Type Lease
• Operating Lease
• Benefits of a Lease
• Direct Finance Lease

Only done on assets with finite lives and is done the same as depreciation

• Amortization
• FIFO
• LIFO
• Derecognition

Only contains common stock and nonconvertible stock

• Accelerated Depreciation
• Simple Capital Structure
• Finance (Capital) Lease
• Income Tax Expense

Created when taxes payable are greater than income tax expense;POST-EMPLOYMENT BENEFITS, WARRANTY EXPENSES AND TAX LOSS CARRYFORWARDS ARE MOST COMMON CAUSES;Must be reduced if it is unlikely to be used under GAAP

• Deferred Tax Asset
• Interest Expense
• Taxes Payable
• Income Tax Expense

When the lease is treated like ownership for tax reporting to allow for the deduction of depreciation and interest expenses but the lease does not appear on the balance sheet

• Operating Lease
• Synthetic Lease
• Interest Expense
• Sales-Type Lease

The value reported on the financial statements net of depreciation

• Liability's Tax Base
• Asset's Tax Base
• Operating Lease
• Asset's Carrying Value

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When one event's probability affects the other events*P(A|B) = The probability of A given B

• Total Probability
• Conditional Probability
• Addition of Probability
• Empirical Probability

The mean of n numbers expressed as the reciprocal of the arithmetic mean of the reciprocals of the numbers

• Harmonic Mean
• Sample Skew
• Negative Skew
• Platykuric

Holding Period Return = (ending value/beginning value) - 1 OR= (ending value - beginning value + cash flow received)/(beginning value) - 1

• Money Market Yield
• Holding Period Yield
• Bond Equivalent Yield
• Bank Discount Yield

The percentage of the observations that lie within k standard deviations of the mean is at least 1 - (1/k^2) when k > 1

• Chebyshev's Inequality
• Effective Annual Rate
• Bayes' Formula
• Subjective Probability

= (risk free rate) + (default risk premium) + (liquidity premium) + (maturity risk premium)

• Required Interest Rate
• Measurement Scales
• Effective Annual Rate
• Independence Test

Same as IRR

• Money Weighted Return
• Time Weighted Return
• Negative Skew
• Money Market Yield

Events are independent if P(A|B) = P(A)

• Negative Skew
• Sample Skew
• Independence Test
• Harmonic Mean

P(A and B) = P(A) * P(B) if independent events

• Conditional Probability
• Empirical Probability
• Joint Probability
• Total Probability

Formula to find the number of possible ways of selecting r items from a set of n items;C = (n!) {(n - r)! * r!}

• Combinational Ordering
• Conditional Probability
• Harmonic Mean
• Permutational Ordering

Dividing the covariance between returns of two assets by the individual standard deviations of returns of the two assets

• Chebyshev's Inequality
• Two Assets' Correlation Coefficient
• Permutational Ordering
• Bayes' Formula

= (1 + HPR) ^ (365/days until maturity) - 1

• Effective Annual Rate
• Subjective Probability
• Money Market Yield
• Effective Annual Yield

Used to update a given set of prior probabilities for a given event in response to new information;(Updated Probability) = {(Probability of new information of a given event) (Unconditional probability of new information)} * (Probability of event)

• Bayes' Formula
• Chebyshev's Inequality
• Harmonic Mean
• Mesokurtic

Comes from a personal judgement

• A Priori Probability
• Total Probability
• Joint Probability
• Subjective Probability

Comes from a formal reasoning and inspection process; an objective probability

• Total Probability
• Empirical Probability
• A Priori Probability
• Joint Probability

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When each existing share is divided into multiple shares;No change in owners wealth;Share price drops accordingly; Historically, stocks rise after a split because it is seen as a positive sign

• Stock Dividend
• Discount Basis
• Stock Split
• Project Beta

Prevents shareholders from attending all the meetings and therefore exercising their full voting rights

• Require Shareholder Attendance to Vote Hold Their Meetings on the Same Day but in Different Locations
• Approaches to Calculating Cost of Equity
• Selecting an External Auditor
• Criteria for Capital Budgeting Method

Where the cost of one of the WACC components changes;= Amount of Capital at which the Component's Cost Changes/Weight of the Component in Capital Structure

• Break Point
• NPV Profile
• Poison Pill
• Beta

The set of internal controls, processes and procedures by which firms are managed and defines the rights, roles and responsibilities of management

• Declaration Date
• Corporate Governance
• Total Leverage
• CAPM Approach

= (Percent Change in EBIT)/(Percent Change in Sales)= [Quantity of Units Sold (Price per Unit - Variable Cost)] /[Quantity of Units Sold (Price per Unit - Variable Cost) - Fixed Cost] = (Sales - Total Variable Costs) / (Sales - Total Variable Cost - Fixed Costs]

• Degree of Operating Leverage
• Operating Cash Cycle
• Role of Nominations Committee
• Degree of Financial Leverage

Accelerate cash outflows

• Liquidating Dividend
• Liquidity Pull
• Poison Pill
• Dividend Dates

*Involves large transactions*Same principles apply to most corporate decision making *Objective way to maximize shareholder value

• Uncommitted Line of Credit
• Why Capital Budgeting is Important
• Criteria for Capital Budgeting Method
• Committed Line of Credit

Looking at a publicly traded security of a company involved directly in the business the project is engaged in;Company's beta is also a product of its capital structure and must be adjusted accordingly to fit the need of the project;Delever the comparable beta and relever for the project in question

• Takeover Defenses
• Selection Methods
• Beta Pure Play Method
• Regular Dividend

~Beta uses historical data and sensitive to the length of time and frequency of data~Affected by which index is chosen to represent the market return~Betas are believed to revert to 1 after time and the estimate may need to be adjusted accordingly ~Betas of smaller firms may need to be adjusted upward to reflect risk inherent in small firms not captured by Beta calculation

• Country Risk Premium
• Liquidity Pull
• Problems with Pure Play
• Profitability Index

= Fixed Operating Costs/(Price - Variable Cost per Unit)

• Flotation Costs
• Incremental Cash Flow
• Operating Break Even Cost of Sales
• Break Even Quantity of Sales

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People must complete a study program of financial education designed by the CFA Institute before becoming a Chartered Financial Analyst. The CFA exam includes three levels which each CFA candidate have to pass in sequence during the course of this program. We will begin with CFA Level 1 with updated information about the exam and tips for exam preparation. Read How To Prepare For CFA Level 1 2015 – 15 Tips Everyone Should Know to broaden your understanding about this tough exam.

About CFA Level 1 Exam

Topics of CFA Level 1 Exam

300 hours is the ideal amount of time which most CFA candidates need to spend on preparing for each exam at each level. In the curriculum, there are 18 self-study sessions including sample mock exam questions which are highly recommended for students to use, also, they should utilize free CFA sample practice questions provided by third-party providers. The CFA Institute offer two sample exams available online around 2 weeks prior to the CFA Level 1 exam. Here are topics that will be covered in the CFA Level 1 exam:

• Ethical and Professional Standards
• Investment Tools
o Corporate finance
o Economics
o Financial reporting and analysis
o Quantitative methods
• Asset Classes
o Alternative investments
o Derivatives
o Equity investments
o Fixed income
• Portfolio Management and Wealth Planning

Format of CFA Level 1 Exam

CFA Level 1 exam includes 240 questions in the multiple choice format. It’s divided into two three-hour sessions with 120 questions in the morning session and 120 questions in the afternoon session. Each question will be offered three answers and test-takers have to choose the most suitable answer to the question. Candidates are not penalized for guessing because all of the answers are equally weighted. Some words such as all of above, none of the above or except are not used in the multiple choice questions.

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An ______ weighted portfolio is not necessarily the portfolio that provides the greatest reduction in risk

• equal
• event
• bid
• High

Three steps in Portfolio Management Process1. The ________ Step- begins with an analysis of the investors circumstances & KYCThis analysis results in an ___ that details the investment objectives and constraints2. The ________ step involves analysis of the risk and return characteristics of various asset classes3. The _______ step is where the manager must monitor changes and rebalance the portfolio periodically and compare it to its benchmark

• new redeem equity fees
• long short neutral
• contribution employee
• planning IPS execution feedback

Diversification allows an investor to reduce portfolio ____ without reducing the portfolios expected ______

• NAV fee
• risk return
• linear
• higher

ETFs may produce ____ capital gains liability compared to an index fund

• bid
• ask
• High
• less

An IPS should specify an objective benchmark such as an _____ return against the success of the portfolio management will be measures. It should be updated at least every few ______ and any time the investor's objectives or constraints change significantly

• linear
• NAV fee
• index years
• individual

Life insurance companies have ___ term investment time horizons, while P&C insurance have ___ term investment time horizon because claims are expected to arise sooner

• long high
• lowest
• long short
• bias long short

For BanksRisk Tolerance: _____ (High or Low)Investment Horizon: ____ (Short or long)Liquidity needs: ____ (High or Low)

• low short high
• long short
• long high
• Low Long Short High

For Defined benefit PensionsRisk Tolerance: _____ (High or Low)Investment Horizon: ____ (Short or long)Liquidity needs: ____ (High or Low)

• High
• High Long Low
• bias long short
• higher

Index funds are _________ managed; that is, the portfolio is constructed to match the performance of a particular index

• actively
• private
• passively
• ask

Buyout funds (private equity funds) typically buy entire public companies and take them ________

• cannot
• private
• High
• arbitrage

The alternative to portfolio perspective is to examine the risk and return of _________ investments in isolation

• actively
• equal
• index years
• individual

Mutual funds are one form of _______ investment

• pooled
• lowest
• portfolio
• bond

The investment objective of a bank is to earn more on the loans and investments than banks ___ for deposits. Banks seek to keep risk ___ and need adequate ________ to meet investor withdrawals as they occur

• low short high
• pay low liquidity
• type maturity
• portfolio

An ETF is similar to a closed end fund in that purchases and sales are made in the _____ rather than with the fund. Unlike closed end funds, they are ______ managed and there are special redemption provisions that keep their market price very close to their ___

• market passively NAV
• arbitrage
• passively
• money market

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Below are the Most Expected Things You Should Know about 3 Levels of CFA Exam (Part 1). The CFA program includes three exams held at the test centers all over the world. Three CFA Levels must be overcomed sequentially considered as a condition to become a CFA chartered holder. The exam topics for each of these three levels are designed to test you on extensive skills considered to be most relevant for the investment profession.
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CFA Level I Exam

Exam Structure and Format

CFA Level 1 exam consists of 3-hour morning and afternoon session and 120 independent multiple choice questions for each session. They can be answered correctly by applying only the information provided in the question and your subject knowledge. So, it’s not a good idea if mention outside information; they are not often designed to cause you wrong ideas about questionnaire........

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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?

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earn absolute returns. Earn a risk-free return.

• Active Risk
• Real Assets
• Arbitrage
• Benchmark

Hedge funds are distinguished by lower regulation, specialized trading strategies, and performance based compensation. Hedge funds and mutual funds both invest in the same types of traditional assets.

• Hedge vs Mutual Funds?
• Relative return standard
• Real Assets
• Hedge Funds

evaluate investment, against a benchmark, outperforming benchmark. Evaluates the returns of a portfolio relative to a benchmark.

• Hedge vs Mutual Funds?
• Absolute Return Standard
• Active Return
• Relative return standard

return computation, statistical, valuation and portfolio management

• Securities Structures
• 4 Methodologies AI Analysis
• Commodities
• Hedge Funds

government regulation & taxation

• Real Assets
• Regulatory Structures
• Securities Structures
• Trading Structures

Active management, absolute and relative return generation, arbitrage, return enhancement & return diversification

• Alternative Investments
• Goals in Alternative Assets
• What is Mezzanine Debt?
• Traditional Investments

delivered to market. Metals, agricultural products, energy, building materials.

• Commodities
• Lumpy assets
• Illiquidity
• Inefficiency

Development, execution of trading strategies

• Securities Structures
• Active Return
• Trading Structures
• Regulatory Structures

Tranched securities w/ varying levels of risk and seniority. Backed by an underlying portfolio.

• What is a collateralized debt obligations?
• What is Mezzanine Debt?
• What is a credit derivative?
• Goals in Alternative Assets

Buying and holding, meet risk and return objectives

• Active Management
• Active Risk
• Passive Investing
• Active Return

1. Debt, equity securities like venture capital (finance startup companies),2. leveraged buyouts LBOs (public company to private), 3.mezzanine debt (blend of private debt and equity financing)4. distressed debt (companies near bankruptcy). Not publicly traded.

• Active Risk
• Active Return
• Private Equity
• Illiquidity

derivatives with contingent payoffs tied to the credit risk of underlying assets.

• What is Mezzanine Debt?
• Trading Structures
• Arbitrage
• What is a credit derivative?

private investment vehicles. Minimal regulatory restrictions. Uses derivatives, leverage, short positions and other strategies.

• Efficiency
• Hedge Funds
• Active Risk
• Real Assets

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In a separate asset allocation approach, there are two separate managers much like the currency overlay approach but the managers use separate guidelines. In separate asset allocation currency is considered as an asset class and the fund managers is not restricted to the management of the currency exposure of an existing portfolio.

• What is the relationship between commodity futures and event risk?
• What is the formula to calculate a swap payment?
• What are the differences between systematic and discretionary managed futures styles?
• What is the difference between currency overlay and separate asset allocation?

- Lengthening the measurement interval (lower volatility usually)- Compounding the monthly return but calculating the standard deviation from th enot compounded monthly return- Writing out of the money puts and calls- Smoothing of returns lower volatility- Eliminating extreme returns by doing a TR swap

• Which commodities provide a hedge against unexpected inflation?
• What is the formula to calculate a swap payment?
• Which situations could cause an upward bias in the calculation of the Sharpe ratio (5)?
• What is the formula for the sortino ratio?

Refers to debt securities which were originally deemed IG when issued but have been downgraded to HY afterwards.

• What is the formula for the sortino ratio?
• What is the J factor risk for distressed debt holders?
• What does the term "fallen angels" refer to in the fixed income universe?
• What is the definition of the NAREIT hedged Index?

- Spot return- Roll return- Collateral return

• What is the relationship between commodity futures and event risk?
• What are the three sources of return from a commodity investment through futures?
• What are the advantages of managed futures?
• What is the J factor risk for distressed debt holders?

Energy and precious metals

• Which commodities provide a hedge against unexpected inflation?
• What are the advantages of managed futures?
• What is the definition of the NAREIT hedged Index?
• What is the formula for the sortino ratio?

Lack of security trading leads to stale price biasand cause measured standard deviation to be over or under stated and correlation being lower than expected.

• What is the formula for the sortino ratio?
• What does a 5-3-2 crack spread means?
• What is stale price bias?
• What is convenience yield?

Because of the option like payoff characteristics of many hedge fund strategies, returns are not normally distributed. Indeed, hedge funds display some skewness (asymmetry of the return distribution) and high kurtosis (relative frequent extreme returns).

• What is the definition of the NAREIT hedged Index?
• Why the Sharpe ratio is not the most apprepriate risk measure for hedge funds?
• What is the definition of the NCREIF unsmoothed Index?
• How can liquidity level affect L/S market neutral hedge funds?

Direct investments in real estate have correlations of returns with stocks and bonds clsoe to zero.

• What is the correlation level between direct investments in real estate and both stocks and bonds?
• What is the difference between currency overlay and separate asset allocation?
• What is the relationship between commodity futures and event risk?
• What is the definition of the NCREIF unsmoothed Index?

Changes in commodity future prices are highly correlated with changes in spot prices. In periods of financial, economic, political distress or after weather disasters, short term commodity prices tend to rise so as futures. This is called positive event risk.

• What is the definition of the NAREIT hedged Index?
• What is the definition of the NCREIF unsmoothed Index?
• What is the relationship between commodity futures and event risk?
• What is the J factor risk for distressed debt holders?

Strategy attempting to exploit anomalies in the prices of corporate convertible securities (convertible bonds, warrants and preferred stock). The simplest example is buying a convertible bond and hedging the equity component by shorting the associated stock.

• What is convenience yield?
• Definition of convertible arbitrage (+one example)?
• Definition of Global Macro strategies?
• What is stale price bias?

- Similarity : Both look for positive returns regardless of market conditions- Difference :Managed futures only invest in the forward and derivatives markets by trading options and futures. In contrast other hedge funds invest in underlying markets mainly.

• How can liquidity level affect L/S market neutral hedge funds?
• Why the Sharpe ratio is not the most apprepriate risk measure for hedge funds?
• What is the relationship between commodity futures and event risk?
• Discuss a primary similarity and difference between managed futures and other hedge funds?

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trade sale: sale of a company to a strategic buyer such as a competitor- IPO- Recapitalization

• sector strategy
• index fund strategy
• Strategy - exit strategy
• style strategy

real estate investment trusts - may provide equity financing for purchases, sells shares publicly to raise funs to make property purchases; investors get access to diversified real estates portfolios with professional management

• Financing
• REIT index
• ETF
• REITS

managers have big fees - willing to take big risks

• HF - fees structure and gambling
• HF - option-like strategies
• fee structure - private equity
• HF - smoothed pricing

- management fee (1%-3%) from committed capital. After committed capital is fully invested, the fees are paid only on the funds remaining in the investment vehicle- mostly GP doesn't earn incentive fee til LPs receive their initial investment back. Incentive fee approximately 20% for GP, LP receives 80% of total profit plus ROI

• Strategy - exit strategy
• PRIVATE EQUITY
• fee structure - private equity
• HF - fees structure and gambling

best funds survive and only those are included in the index

• hedge fund - backfiling bias
• Leveraged ownership
• hedge fund - self selection bias
• hedge fund - survivorship bias

- investing in a privately owned company or a public company intending to make them private- structured as partnership where outside investors are Limited Partners (LPs) and the private equity firm is General Partner (GP)

• REITS
• REIT index
• PRIVATE EQUITY
• Financing

assets' market values are only estimated, is not based upon transactions

• cost method
• types of RE indices
• HF - smoothed pricing
• Financing

uses estimated values (appraisals) as inputs to the indices; rely on comparable sales and cash flow analysis technique, subjective; low volatility and low correlation with important indices (S&P 500)

• REIT index
• appraisal index
• Financing
• open-end fund

1) market/comparable approach: values a company by using multiples of different measures- EBITDA (earnings before interest, taxes, depreciation, amortization). The multiple = Market value of similar public companies/EBITDA (for instance, 10xEBITDA is a multiple)2) discounted cash flow (DCF) approach: values a company as PV of future cash flows3) asset-based approach: assets minus liability

• portfolio company valuation
• PRIVATE EQUITY
• sales comparison method
• income method

Net asset value of a mutual fund is the value of the investment company's assets minus liabilities, stated on a per-share basis. Share price of an open-end fund always equals to NAV (investment company must redeem share at current market value); share price of a closed-end fund may or may not equal to NAV since share price is determined in the secondary market. Share price of a closed-end fund might trade at a premium (share price > NAV) or discount (share price < NAV)

• appraisal index
• style strategy
• REIT index
• NAV (net asset value)

buy shares of commodity firms, exposure to commodity price changes

• commodity-linked equity investments
• commodity-linked bonds
• commodities - active investors
• commodities - passive investors

uses the prices of publicly traded shares of REITS to construct the indices; the more frequently the shares trade, the more reliable

• REIT index
• appraisal index
• REITS
• ETF

invest in securities from all over the world, including those from the investment company's home country

• stable value fund strategy
• style strategy
• index fund strategy
• global fund strategy