2019 CFA level 3 qbank reading 30 alternative investments portfolio management questions

10/12/2018 Learning Management System Question #1 of 87 Compared to stocks, direct equity investments in real estate have had: A) higher volatility of returns B) lower volatility of returns .in C) about the same volatility of returns en tre Question #2 of 87 Which of the following most likely represents the timeline of a private equity fund? A) The commitment period of years, the life of the fund reaching years, an option to bo ok c extend the fund more years B) The commitment period of 7-10 years, the life of the fund reaching 12-15 years, an option to extend the fund more years C) The commitment period of years, the life of the fund reaching 7-10 years, an option to w w o m extend the fund more years Question #3 of 87 w With respect to managed futures and real estate, legal issues and valuation methods are special due diligence issues associated with: A) real estate only B) managed futures only C) real estate and managed futures Question #4 of 87 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 1/29 10/12/2018 Learning Management System In alternative investments, distressed debt arbitrage seeks to earn a return from: A) an improvement in the prospects of the rm only B) either the decline of the stock to zero or an improvement in the prospects of the rm C) the decline of the stock to zero only Question #5 of 87 in In the due diligence process of selecting an active manager of alternative investments, "assessing the organization of the manager's rm" means assessing the: B) stability of the rm and sta turnover en tre A) terms and structure of the investments the manager o ers Question #6 of 87 bo ok c C) documents (e.g., prospectuses of the investments the manager o ers) m In the due diligence process of selecting an active manager of alternative investments, o "assessing the investment process" means assessing the: w w A) stability of the organization and employee turnover B) special assets the manager o ers w C) competitive edge the manager o ers Question #7 of 87 Which of the following statements regarding how managed futures are typically structured is least accurate? A) Commodity trading advisors are responsible for actively buying and selling futures contracts https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 2/29 10/12/2018 Learning Management System B) Commodity trading advisors hire commodity pool operators to manage the pool of futures contracts C) Commodity pool operators can act as commodity trading advisors who actively manage a pool of futures contracts Question #8 of 87 venture capital investments will receive the promised dividend: in Compared to common stockholders, investors who use convertible preferred stock to make en tre A) only if common stockholders receive a dividend or a disbursement through liquidation B) before common stockholders receive a dividend or a disbursement through liquidation Question #9 of 87 bo ok c C) before common stockholders receive a dividend but not if there is a liquidation In distressed securities investing, a private equity fund that seeks to partner with the company m in which the fund invests would most likely be called: o A) an orphan equity fund w w B) a high yield fund w C) a vulture fund Question #10 of 87 With respect to weighting schemes for hedge fund indices, the weighting schemes: A) are always based upon assets under management B) can be either equally weighted or based upon assets under management C) are always equally weighted https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 3/29 10/12/2018 Learning Management System Question #11 of 87 In making investments in private equity, diversi cation is: A) possible by holding a number of positions, but usually only for investors with portfolios over $100 million B) possible by holding a number of positions, and the size of the portfolio is not an issue C) not possible to any investor en tre in Question #12 of 87 A hedge fund that takes positions in convertible bonds or convertible preferred stock and then takes other positions in the underlying stock would be most accurately placed in the style A) distressed securities B) equity market neutral m C) convertible arbitrage bo ok c category: w w o Question #13 of 87 Special due diligence issues such as valuation, credit analysis, and nancial structure are most w likely associated with investments: A) in distressed securities B) made indirectly in real estate C) in managed futures Question #14 of 87 In distressed securities investing, the fact that there can be cyclical supply and demand for these investments is associated with: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 4/29 10/12/2018 Learning Management System A) market liquidity risk B) J-factor risk C) arbitrage risk Question #15 of 87 Hedge fund managers with good track records: in A) generally continue to have good track records B) often demand higher incentive fees bo ok c Question #16 of 87 en tre C) usually lower their fees to increase the assets under management A hedge fund that focuses on earning returns from mergers, spin-o s, and takeovers would be most accurately placed in which style category? w w w C) Hedged equity .o B) Merger arbitrage m A) Equity market neutral Question #17 of 87 In the structure of a hedge fund, which of the following is least accurate concerning a lock-up period? A lock-up period: A) establishes a cap on new investment B) establishes exit windows C) establishes a minimum investment period for each investment https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 5/29 10/12/2018 Learning Management System Question #18 of 87 With respect to the role of alternative assets in a portfolio, it can be best described as exposure to: A) unique asset classes and/or special investment strategies B) special investment strategies C) unique asset classes only en tre in Question #19 of 87 Direct investment in commodities has become easier for all investors because of the: A) increased number of hedge funds in these markets B) increase in hedging activities of managers in rms that produce and/or deal in bo ok c commodities m C) the increase in the number of commodity indices .o Question #20 of 87 w w Which stage of nancing generally supports further expansion of production and sales? A) The second stage w B) The third stage C) The rst stage Question #21 of 87 For use in evaluating hedge funds, which of the following is NOT a shortcoming of the Sharpe ratio? A) It uses an arbitrary reference return https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 6/29 10/12/2018 Learning Management System B) It is a stand-alone measure that ignores the diversi cation contributions of a hedge fund to an overall portfolio C) It has had little success in predicting winners Question #22 of 87 Compared to indirect investments in commodities, direct investments o er: in A) less exposure to commodity returns but lower carrying costs B) more exposure to commodity returns but higher carrying costs bo ok c Question #23 of 87 en tre C) less exposure to commodity returns and higher carrying costs Frank Campbell, CFA, has a client who wants to make a venture capital investment Campbell is considering recommending convertible preferred Which of the following is most likely an advantage of using convertible preferred stock in making an investment in venture capital? m Convertible preferred stock: o A) bene ts in the event of a company buyout w w B) has dividends that can increase w C) ranks ahead of debt investors Question #24 of 87 With respect to information e ciency and potential for diversi cation, in comparing alternative investments to exchange traded stocks, the markets for alternative investments are: A) more informationally e cient and provide more opportunity for diversi cation B) less informationally e cient and provide less opportunity for diversi cation C) less informationally e cient and provide more opportunity for diversi cation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 7/29 10/12/2018 Learning Management System Question #25 of 87 William Jones, CFA, has a client who wants to invest in a hedge fund that has the strategy of investing in equities and has among its goals the elimination of systematic risk Jones has found two funds that he thinks are well run: the Marius Fund that uses an equity market neutral strategy and the Hera Fund that uses a hedged equity strategy Given the client's stated preferences, Jones should recommend: A) the Hera Fund only .in B) either fund en tre C) the Marius Fund only bo ok c Question #26 of 87 With respect to the terms "formative-stage companies" and "expansion-stage companies", which are considered issuers of venture capital? A) Formative-stage companies only m B) Both formative-stage companies and expansion-stage companies w w o C) Neither formative-stage companies nor expansion-stage companies w Question #27 of 87 In the life of a private equity fund, capital calls represent the: A) request for more capital by the fund sponsor from the investors after the commitment period B) request for more capital by the fund sponsor from the investors during the commitment period C) request for more capital by the fund sponsor from the investors at the beginning of the fund prior to the commitment period https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 8/29 10/12/2018 Learning Management System Question #28 of 87 Jill Tillman, CFA, has a client who wishes to invest in private equity The client's total portfolio is $2 million The client wants to invest $250,000 in private equity, wants to keep the money invested for 7-10 years, and does not need liquidity Tillman should: A) invest the client’s money because private equity has the desired properties B) not invest the money because private equity requires a longer holding period than speci ed by the client en tre in C) not invest the money because it represents too much of the client’s portfolio Question #29 of 87 Bernice Clark, CFA, is analyzing the portfolio of a private wealth client In the process, Clark bo ok c wants to address special issues that alternative investments raise for her client The special issues would: A) not include measuring the ownership in the client’s corporate bond portfolio and not include measuring the client’s ownership in closely held companies m B) not include measuring the ownership in the client’s corporate bond portfolio but would include measuring the client’s ownership in closely held companies .o C) include measuring the ownership in the client’s corporate bond portfolio and the client’s w w w ownership in closely held companies Question #30 of 87 Diversi cation is one of the major issues that must be addressed when formulating a private equity investment strategy To be considered diversi ed, investors must be able to invest in to 10 di erent investments Which of the following statements regarding private equity is most accurate? A) Liquidity is usually not an issue with private equity due to its positive correlation with equities https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 9/29 10/12/2018 Learning Management System B) Smaller portfolios can achieve the necessary diversi cation by investing in private equity funds C) The typical private equity investment is usually less than years Question #31 of 87 In contrast to venture capital funds, buyout funds usually have: B) less frequent losses and more upside potential bo ok c Question #32 of 87 en tre C) more frequent losses and more upside potential .in A) less frequent losses and less upside potential As an investment, the commodity energy is: A) nonstorable and a hedge against in ation m B) storable and a hedge against in ation w w o C) nonstorable but not a hedge against in ation w Question #33 of 87 When added to a portfolio of stocks and bonds, based upon historical performance, we can expect distressed securities to contribute: A) diversi cation but not enhanced return B) enhanced return but not diversi cation C) both enhanced return and diversi cation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 10/29 10/12/2018 Learning Management System B) long-only value investing Its returns depend on the fact that the market for distressed securities is e cient C) a momentum strategy The goal is to nd a rm that has “improvement momentum.” Question #48 of 87 The convertibilty feature in convertible preferred stock is important because it means that preferred stockholders: in A) can block a possible buyout en tre B) can convert their claims to equal those of later investors in the company Question #49 of 87 bo ok c C) can bene t from a buyout favorable to common stockholders Which of the following commodities is least likely to have returns that are positively correlated m with in ation? B) Energy .o A) Corn w w w C) Industrial metals Question #50 of 87 With respect to buyers of venture capital, which group represents the rst group to invest in the company after the initial entrepreneurs and their friends and family? A) Venture capitalists B) Strategic partners C) Angel investors https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 15/29 10/12/2018 Learning Management System Question #51 of 87 Lee Benson, CFA, is considering purchasing stock in a company that produces oil With respect to asset class and subgroup, as an alternative investment, this choice would be most accurately categorized as: A) an indirect investment in commodities B) an indirect investment in real estate .in C) a direct investment in commodities en tre Question #52 of 87 Which of the following most likely represents the compensation to a sponsor of a private equity fund? bo ok c A) A management fee of 2% and an incentive fee of 20% B) A management fee of 2% and an incentive fee of 2% m C) A management fee of 10% and an incentive fee of 10% w w o Question #53 of 87 Ben Leesom, CFA, thinks distressed securities are appropriate for one of his clients and would like to include them in his client's portfolio If liquidity is a concern for the client, which w alternative investment, either private equity or a hedge fund, would be more appropriate? A) An investment with a hedge fund structure over a private equity structure B) Either one since both have approximately the same liquidity C) An investment with a private equity structure over a hedge fund structure Question #54 of 87 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 16/29 10/12/2018 Learning Management System In distressed securities investing, the type of risk that is from the human element associated with decisions determined in a court of law is called: A) decision risk B) J-factor risk C) event risk .in Question #55 of 87 A) just as convenient, which is very convenient B) less convenient Question #56 of 87 bo ok c C) more convenient en tre Compared to direct investing in commodities, indirect investing is usually considered to be: m Which of the following statements regarding what a managed futures trading strategy is called o and how it is described is least accurate? w w A) Unsystematic – the commodity trading advisor tracks speci c commodity futures contracts and uses trading rules to signal when to buy and sell the contract B) Discretionary – the commodity trading advisor uses their own discretion to buy futures w contracts they feel are over or undervalued C) Systematic – the commodity trading advisor trades according to market trends and may even use a contrarian strategy which trades against the market trend Question #57 of 87 When evaluating hedge funds, special issues that complicate the process would include the fact(s) that: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 17/29 10/12/2018 Learning Management System A) many hedge funds are absolute return vehicles for which no benchmark exists, and they can use long/short strategies while most benchmarks are long only in nature B) benchmarks are designed to be both long and short in nature, but most hedge funds are long only C) benchmarks are absolute return in nature and not address other goals such as the elimination of systematic risk .in Question #58 of 87 With respect to the seed and start-up point in the early stage of venture capital, which of the A) In neither the seed nor start-up point en tre two represents a point where the company has already started generating revenue? B) Not at the start-up point, but revenue has begun at the seed point m Question #59 of 87 bo ok c C) Not at the seed point, but revenue has begun at the start-up point w w investing EXCEPT: o Direct equity real estate investing has all of the following advantages over indirect real estate A) the ability to manage geographic diversi cation w B) tax deductible expenses C) lower information costs Question #60 of 87 With respect to hedge fund indices, back- ll bias refers to: A) the increased in ow of investments to a given fund in an index right after the style of the index has performed well https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 18/29 10/12/2018 Learning Management System B) modifying the historical series of the index by replacing the historical returns of recently dropped funds with the historical returns of new funds added to the index C) a hedge fund manager lling in historical values of his/her hedge fund’s performance when the fund has been selected to be included in an index Question #61 of 87 A) equally di cult with VC funds as it is with buyout funds en tre B) more di cult with VC funds than with buyout funds .in With respect to venture capital (VC) funds and buyout funds, measuring returns accurately is: Question #62 of 87 bo ok c C) less di cult with VC funds than with buyout funds Real estate has the National Council of Real Estate Investment Fiduciaries (NCREIF) Property m Index as its principal benchmark Which of the following is most accurate? o A) The volatility of the index has a downward bias B) The average return of the index has an upward bias w w w C) The volatility of the index has an upward bias Question #63 of 87 With respect to hedge fund indices, survivorship bias: A) can be as high as 3% to 5% and is probably high for event-driven strategies and lower for hedged-equity strategies B) can be as high as 1.5% to 3% and is probably low for event-driven strategies and higher for hedged-equity strategies https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 19/29 10/12/2018 Learning Management System C) can be as high as 1.5% to 3% and is probably high for event-driven strategies and lower for hedged-equity strategies Question #64 of 87 Assessing what a manager's competitive edge is over other managers in a speci c market falls under which of the following due diligence checkpoints? Assessing the: A) service providers bo ok c Question #65 of 87 en tre C) investment process .in B) market opportunity o ered With respect to hedge fund investing, the net return to an investor in a fund of funds would be lower than that earned from an individual hedge fund because of: m A) the extra layer of fees only .o B) no reason; fund of funds earn returns that are equal to those of individual hedge funds w w w C) both the extra layer of fees and the higher liquidity o ered Question #66 of 87 With respect to commodities and managed futures, which have investable indices? A) Commodities but not managed futures B) Both commodities and managed futures C) Neither commodities nor managed futures https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 20/29 10/12/2018 Learning Management System Question #67 of 87 Which of the following is an example of an issuer of venture capital? A) Large, successful corporations B) Formative-stage companies C) Venture capitalists .in Question #68 of 87 en tre An investor in private equity needs to prepare for capital calls, which: A) equal the funds promised at the initiation of the fund and usually occur during the rst ve years of the fund B) is additional money requested by the sponsor as mezzanine nancing after the bo ok c commitment period C) occurs at the beginning of the life of the fund before the commitment period m Hollis, Ignitowski, Jacobs, and Kelso are four analysts working in a windowless basement o ce o at Madison Partners, a money manager specializing in alternative investments They have an ongoing debate over which alternative-investment vehicle is best As is often the case in long- w w running feuds, each frequently refers back to a favorite argument Hollis: "I like receiving convertible preferred stock for my venture-capital investments because w my claim is usually senior to those of investors who get in later." Ignitowski: "Agricultural commodity investments are better, because they provide an in ation hedge and have traditionally delivered better returns than bonds." Jacobs: "Private-equity limited partnerships not only limit the potential losses of initial investors, but also avoid double taxation." Kelso: "A fund of funds has less survivorship bias than an index, and it rarely falls prey to style drift." Opinions about investment classes aside, the four Madison analysts are tasked with performing due diligence on hedge funds Hedge funds are notoriously di cult to analyze, and the analysts https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 21/29 10/12/2018 Learning Management System divide up the task, with each focusing on a certain aspect of the due diligence Hollis considers the hedge fund's strategy, looking at the investment style as well as the individual investments to assess whether the fund is likely to outperform not only the market, but other hedge funds In this analysis, he also considers the fund's nancial policies and market risk pro le, using downside deviation rather than standard deviation Hollis also considers the age of the fund He prefers funds that have been around for awhile because experienced management gives the funds an edge Lastly, Hollis' duties also include reviewing the funds' structure, examining who manages, audits, or regulates the fund Ignitowski focuses on performance data Because hedge funds are not well regulated, they in have a lot of freedom regarding how they present performance data Ignitowski drills down into the performance of individual holdings to assess whether the stated returns are accurate He en tre then recalculates cumulative performance data using weekly returns, adjusting when possible for in ows and out ows Ignitowski prefers larger funds since they have historically outperformed smaller funds bo ok c Jacobs tackles the administrative details, starting with an analysis of the fund's fee structure He researches legal issues, including pending lawsuits, regulatory actions, and lock-up provisions Jacobs' review also addresses personnel issues, including the amount of sta , turnover rates, and, when possible, rates of compensation Kelso calls investors in the hedge fund for references He asks about investors' knowledge of m the managers' investment styles and whether they deviate from the stated style .o After the four analysts compile their analysis of hedge funds, their due diligence is forwarded w w upstairs to the investment director, Francine Finster She does not see the analysts' e-mail on this particular day because she is in conference with Dan Braden, a dot-com millionaire who retired at 35 with just one goal: becoming a billionaire Braden considers his portfolio of w traditional investments – 60 percent large-cap stocks, 20 percent small-cap stocks, and 20 percent bonds well-diversi ed for his age and level of wealth, but his knowledge of alternative investments is not extensive, and he is consulting Madison Partners for help with that portion of his portfolio Braden has high hopes for his portfolio He wants Finster to nd him an asset class that when added to a portfolio of stocks and bonds will result in better returns and a higher average return-to-volatility ratio, while at the same time bringing an additional diversi cation bene t to the portfolio Finster promises to look at some indexes and some research into historical returns of various asset classes in an attempt to nd this investment, but doubts she can nd anything that will meet Braden's criteria https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 22/29 10/12/2018 Learning Management System Looking ahead, Finster expects Braden to be a fairly di cult customer, demanding very high returns and creative strategies She decides that he might like the idea of a swap Finster prefers interest-rate and commodity swaps but has not been involved in either type of transaction for a number of months To refresh her memory, she wrote down some bullet points comparing the two types of swaps: The value of an interest-rate swap will change over time if market rates change, but will not change over time if market rates stay the same, even if prices change The value of a commodity swap will change over time regardless of whether market rates or prices change Both interest-rate and commodity swaps have a value of zero initially .in In the event of a change in market rates, the value of both an interest-rate swap and a en tre commodity swap will change Question #69 of 87 A) commodity futures B) a venture-capital fund bo ok c The alternative investment Finster added to the Braden portfolio is least likely to be: o m C) a direct real estate investment w w Question #70 of 87 w Which of the Madison analysts does NOT ignore hedge-fund conventions? A) Ignitowski, with his opinions about fund size B) Hollis, with his measure of fund risk C) Hollis, with his opinions about fund age Question #71 of 87 Based on historical data from 1996 to 2015, Finster can most likely meet Braden's lofty goals by investing in: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 23/29 10/12/2018 Learning Management System A) nothing, because no asset class meets those requirements B) venture capital C) managed futures Question #72 of 87 Which of Finster's notes about swaps is least accurate? in A) The value of a commodity swap will change over time regardless of whether market rates or prices change en tre B) The value of an interest-rate swap will change over time if market rates change, but will not change over time if market rates stay the same, even if prices change Question #73 of 87 bo ok c C) Both interest-rate and commodity swaps have a value of zero initially m The Madison due diligence for hedge funds is detailed, but not comprehensive Which o traditional aspect of due diligence is neglected? A) Assessment of the fund's suitability for particular investors w w B) Analysis of the fund's research expenditures w C) Consideration of the fund's use of leverage Question #74 of 87 Which of the Madison Partners made the most accurate statement about alternative investments? A) Hollis B) Ignitowski C) Jacobs https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 24/29 10/12/2018 Learning Management System Question #75 of 87 Style drift and survivorship bias are often mentioned in the analysis of hedge fund performance Which of the following statements is most accurate? Fund of funds can serve as better indicators of aggregate hedge fund performance than hedge fund indices because they tend to have a lower level of: A) style drift only B) both survivorship bias and style drift Question #76 of 87 A) a source of return only bo ok c In distressed securities investing, event risk is: en tre in C) survivorship bias only B) a source of both return and diversi cation w w o m C) a source of diversi cation only Question #77 of 87 w For hedge funds, the basic incentive fee for managers may not be adequate because: A) they are usually too low, e.g., 2% or less B) a manager usually earns a minimum incentive fee regardless of the performance of the fund C) a hedge fund manager may have several goals other than earning a high return, e.g., lowering downside risk Question #78 of 87 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 25/29 10/12/2018 Learning Management System Which of the following is least likely to be a due diligence checkpoint in the selection process of active managers of alternative investments? A) The service providers like lawyers and ancillary sta working for the manager’s rm B) Market opportunity the manager seeks to exploit C) The geographic location of the o ce with respect to the geographic locations in which the manager invests .in Question #79 of 87 en tre When compared to a portfolio of publicly traded stocks, private equity is: A) correlated with stocks but adds moderate diversi cation because of its idiosyncratic risk component bo ok c B) uncorrelated with stocks and adds a high degree of diversi cation C) correlated with stocks and has a low idiosyncratic risk component so it adds virtually no m diversi cation .o Question #80 of 87 w w Within the alternative asset class of real estate, analysts can classify investments as: A) either direct or indirect and as either start-up or middle market w B) either direct or indirect but not as either start-up or middle market C) either start-up or middle market but not as direct or indirect Question #81 of 87 In the special issues that alternative investments raise for investment advisors of private wealth clients, "decision risk" is associated with: A) assessing the investment opportunity https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 26/29 10/12/2018 Learning Management System B) making hiring and ring decisions and general employee turnover of the investment rm C) changing a strategy at the time the portfolio has incurred a large loss Question #82 of 87 Which of the following statements regarding the performance of managed futures is most accurate? in A) Privately managed futures have not performed as well as publicly traded funds en tre B) Publicly traded managed futures have performed well on both a stand-alone and portfolio basis C) Managed futures have exhibited a positive correlation to equities and bonds during up Question #83 of 87 bo ok c markets and a negative correlation during falling markets m Compared to indirect investments in real estate, direct investments in real estate are least likely o to have which of the following properties? w w A) Higher transparency B) Lower liquidity w C) Lower mobility Question #84 of 87 A commodity pool operator (CPO) is deciding whether or not to hire a particular commodity trading advisor (CTA) The CTA has a good track record of performance and often exhibits negative correlation with equities thus enhancing overall performance in down markets Which of the following statements regarding whether or not the CPO should hire the CTA is most accurate? The CPO should: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 27/29 10/12/2018 Learning Management System A) hire the CTA only if its beta and correlation have been considered in determining its risk relative to the pool of operators B) not hire the CTA if their past performance is highly correlated with the pool of operators, as this indicates their volatility relative to the pool is high C) not hire the CTA if their beta relative to other CTAs managing the pool of futures contracts is too low, as this indicates that the CTA’s past returns are low relative to the l f in Question #85 of 87 en tre Adding an allocation to alternative asset classes such as private equity and hedge funds has what theoretical impact on the return and risk of an investment portfolio? Impact on Returns Impact on Risk Increase B) Decrease Decrease C) Increase Decrease o m bo ok c A) Increase w w Question #86 of 87 Which of the following is least likely to be included in private equity subgroups? w A) Futures funds B) Start-up companies C) Private investment in public entities Question #87 of 87 One problem in creating a private equity index is the: A) problems with de ning what constitutes a private equity investment https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 28/29 10/12/2018 Learning Management System B) issue of leverage and how to deal with it w w w o m bo ok c en tre in C) infrequent repricing of the components https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83447664/print 29/29 ... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice /qbank/ 24 038 518/quiz/ 834 47664/print 3/ 29 10/12/2018 Learning Management System Question #11 of 87 In making investments in private equity, diversi... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice /qbank/ 24 038 518/quiz/ 834 47664/print 5/29 10/12/2018 Learning Management System Question #18 of 87 With respect to the role of alternative assets in a portfolio, it can... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice /qbank/ 24 038 518/quiz/ 834 47664/print 10/29 10/12/2018 Learning Management System Question #34 of 87 With respect to adding managed futures investing to a stock and bond portfolio: