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CFA Level I subject

Alternative Investments practice questions

Alternative Investments questions emphasize private capital, real estate, infrastructure, natural resources, hedge funds, digital assets, and performance measurement. This section currently includes 15 public practice questions across 20 topic modules, with explanations, formulas, traps, and key takeaways.

Indicative public exam weight: 7-10%. Start with a topic guide when you need focused review, or use adaptive mode for mixed practice and due reviews.

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4. Real Estate

0 public questions with explanations, formulas, and exam traps.

7. Hedge Funds

0 public questions with explanations, formulas, and exam traps.

Digital Assets

2 public questions with explanations, formulas, and exam traps.

Fees and Returns

1 public question with explanations, formulas, and exam traps.

Hedge Funds

2 public questions with explanations, formulas, and exam traps.

Private Capital

2 public questions with explanations, formulas, and exam traps.

Moderate

Alternative Investments

Digital Assets

A token recorded on a distributed ledger provides no contractual cash flow, has uncertain regulatory treatment, and is held through a lightly regulated offshore platform. The risks most specific to this exposure are:

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Moderate

Alternative Investments

Digital Assets

A bank uses distributed ledger technology to reduce reconciliation time in cross-border settlement while maintaining permissioned access for regulated institutions. This application is best described as:

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Moderate

Alternative Investments

Features, Methods, and Structures

An institutional investor contributes capital directly into a single infrastructure project alongside a private infrastructure fund that controls sourcing, due diligence, and operational oversight. The investor's method is best described as:

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Moderate

Alternative Investments

Fees and Returns

A hedge fund begins the year with NAV of USD100 million. The high-water mark is USD112 million. The fund ends the year before fees at USD116 million. Management fee is 2% of beginning NAV, and incentive fee is 20% of gains above the high-water mark, calculated after the management fee is separately charged. The investor's net return is closest to:

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Moderate

Alternative Investments

Hedge Funds

A hedge fund holds long positions in undervalued equities and short positions in overvalued equities within the same sector, targeting near-zero beta to the broad equity market. The strategy is best described as:

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Moderate

Alternative Investments

Hedge Funds

A hedge fund reports unusually smooth monthly returns despite holding hard-to-value distressed securities and using side pockets. The appraisal issue most likely affecting performance analysis is:

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Moderate

Alternative Investments

Methods and Structures

Compared with a diversified alternative investment fund, a direct investment in one toll road most likely provides:

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Moderate

Alternative Investments

Natural Resources

Timberland returns are often described as having a biological growth component. The most accurate implication is that timberland:

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Moderate

Alternative Investments

Natural Resources and Commodities

An investor gains commodity exposure through fully collateralized futures. Spot commodity prices are unchanged, the collateral earns 3%, and the futures curve is in contango so expiring contracts are rolled into higher-priced longer contracts. The futures-based return is most likely:

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Moderate

Alternative Investments

Ownership and Compensation

In a limited partnership private fund, the general partner's carried interest is best described as:

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Moderate

Alternative Investments

Private Capital

A fund invests in established private companies using significant acquisition debt, operational restructuring, and planned exits through sale or IPO. The strategy is best classified as:

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Moderate

Alternative Investments

Private Capital

A private debt fund provides a senior secured loan to a middle-market company whose cash flows are stable but whose public bond market access is limited. Compared with private equity, the private debt investment most likely has:

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Moderate

Alternative Investments

Private Capital Diversification

A large endowment adds private capital to a public equity and bond portfolio. The diversification benefit is most credible when private capital returns are:

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Moderate

Alternative Investments

Real Estate and Infrastructure

A pension plan wants exposure to stabilized office properties but requires daily liquidity and small ticket sizes. The most appropriate implementation is most likely:

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Moderate

Alternative Investments

Real Estate and Infrastructure

An asset has high upfront capital costs, long operating life, essential-service demand, and revenue partly linked to inflation through regulation or concession agreements. The asset is best classified as:

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