Alternative Investments

Question 1

Benefits of equity real estate investment (4)

Answer 1

Benefits of equity real estate investment: current income, price appreciation, diversification, tax benefits

Question 2

Cap Rate

Answer 2

Cap Rate = Discount Rate – Growth Rate

Question 3

DCF (NOI), V =

Answer 3

DCF: V = NOI/(r-g)

Question 4

Cost Approach Valuation: Estimated Property Value =

Answer 4

Cost Approach Valuation: Estimated Property Value = Land Value + Building Replacement Costs – Depreciation – other costs

Question 5

Net Asset Value per Share (NAVPS)

Answer 5

Net Asset Value per Share (NAVPS) = [((NOIlast*gNOI)/Cap Rate) + Cash + A/R + Other Assets – Debt – Other Liabilities]/Shares Outstanding

Question 6

Funds from Operations (FFO)

Answer 6

Funds from Operations (FFO) = Net Income + Depreciation and Amortization (exclude depreciation charges on real estate, deferred tax charges, and gains or losses from sales of property and debt restructuring)

Question 7

Buyout Investments

Answer 7

Buyout Investments: low working capital requirement, most auctions

Question 8

Ratchet

Answer 8

Ratchet - mechanism that determines the allocation of equity between shareholders and the management team of the private equity controlled company

Question 9

Convenience yield is the …

Answer 9

Convenience yield is the monetary benefit from holding a commodity physically instead of being long the respective futures, reflects market participants’ expectations regarding a possible future scarcity of a short-term non-renewable commodity (shortage  ↑ convenience yield)

Question 10

Forward curve can be described as being:

Answer 10

Forward curve can be described as being: flat if spot = futures/forward price, in contango if spot futures/forward

Question 11

When the futures prices are lower (higher) than …

Answer 11

When the futures prices are lower (higher) than spot prices, the futures market is said to be in backwardation (contango), which results in a positive (negative) roll return

Question 12

Excess Return =

Answer 12

Excess Return = Spot Return + Roll Return

Question 13

The insurance perspective assumes that

Answer 13

The insurance perspective assumes that hedgers hold long positions in the underlying commodity and short positions in the futures to hedge their risk

Question 14

The hedging pressure hypothesis states that investors …

Answer 14

The hedging pressure hypothesis states that investors will receive a risk premium that is a positive excess return for going short in a “normal contangoed” commodity futures market

Question 15

The theory of storage predicts

Answer 15

The theory of storage predicts an inverse relationship between the level of inventories and the convenience yield