Alt Investments

Question 1

Cap Rate =

Answer 1

Discount Rate - Growth Rate

Question 2

Cap Rate (from comps):

Answer 2

Cap Rate = NOI1 / Comparable Sales Price

Question 3

Debt Service Coverage Ratio (DSCR)

Answer 3

DSCR = 5 yr NOI / Debt Services

Question 4

Loan-to-Value Ratio (LTV)

Answer 4

LTV = Loan amount / appraised value

Question 5

Funds From Operations FFO:

Answer 5

Accounting Net Earnings
(+) Depreciation
(+) Deferred Taxes
(-/+) Gains/Losses from sale of property (or restructuring)

Question 6

Adj FFO

Answer 6

FFO
(-) non-cash rent adjustment
(-) recurring maintenance-type CapEx

Question 7

NPV method of fractional share:

Answer 7

f = new investment / PV(entire firm value at exit)

Question 8

IRR method of fractional share:

Answer 8

f = FV of new investment at exit / FV of entire firm value at exit

Question 9

Convenience Yield

Answer 9

Monetary benefit of holding a physical commodity vs. being long the equivalent futures contract.

Question 10

Theory of storage

Answer 10

There is an inverse relationship btw inventories and commodity futures prices; Higher inventories = Lower Convenience Yield

Question 11

Roll Return

Answer 11

Return form closing out maturing futures contract and replacing them with newer ones.
Contango will result in negative roll return

Question 12

Backwardation will result in _____ roll return

Answer 12

Positive

Question 13

Contango will result in _____ roll return

Answer 13

Negative

Question 14

Insurance Perspective:

Answer 14

A long position in commodities will earn positive returns (speculator’s premium) in exchange for supporting short hedges

Question 15

Hedging Pressure Hypothesis:

Answer 15

A risk premium can be earned on either long or short positions depending on the balance of hedgers in the market

Question 16

Theory of Storage:

Answer 16

Commodities that are difficult to store will earn a positive convenience yeild