C14 - Alternative Investments & Private Markets (25-30 Qs C11-C14 'Asset Classes') NC

Question 1

Which of the following are characteristics of the property market?
1. Loose government regulation
2. Decentralised market
3. Importance of management costs

A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above

Answer 1

C - 2 (Decentralised Market) and 3 (importance of management costs)

• A common example of a decentralised market is real estate, where buyers deal directly with sellers.

Question 2

No single shareholder may hold more than what percentage of REIT capital?
A) 5%
B) 10%
C) 15%
D) 20%

Answer 2

B - 10%

Question 3

Which of the following are possible explainations for the supply of propery being relatively inelastic?
1. Supply can be readily increased
2. Planning constraints
3. Geographical immobility

A) 3 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above

Answer 3

C - 2 (planning contraints) and 3 (geographically immobility)

Question 4

What is the maximum percentage of NAV a REIT may commit to a single investment?
A) 30%
B) 20%
C) 40%
D) 75%

Answer 4

C - 40%

The maximum a REIT may commit to an investnement is 40% of their Net Asset Value (NAV)

Question 5

A fund manager is concerned that inflation may increase and to protect the portfolio chooses to hedge by initiating a:
A) LONG position in GILTS
B) SHORT position in OIL FUTURES
C) LONG position in OIL FUTURES
D) LONG position in The Primary Refinitiv/CoreCommodity index figures

Answer 5

D - LONG position in The Primary Refinitiv/CoreCommodity index figures

The Primary Refinitiv/CoreCommodity index is constructed as an equally weighted arithmetic average of 19 categories from orange juice to crude oil. Commodities are positively correlated with inflation, hence going LONG the Primary Refinitiv/CoreCommodity index would be an appropriate hedge.

• Long: Involves buying an asset with the expectation that its price will increase. The investor holds the asset until the price stops rising.
• Short: Involves selling an asset that the investor has borrowed, with the expectation that its price will decrease. The investor then buys the asset back at a lower price and returns it to the lender.

Question 6

What would have an impact on the demand for residential property?
1. Tax relief on mortgage interest
2. Change in interest rates
3. CHange in the structure of the population

A) 2 only
B) 1 and 3 only
C) All of the above
D) 2 and 3 only

Answer 6

C - All of the above

Question 7

Which are chacteristics of property bond?
1. They represent shares in a property company
2. They are a form of indirect property investment
3. The coupons received from the bonds are linked to income received from the property

A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) All of the above

Answer 7

C 2 (form of indirect property investment) and 3 (coupons linked to income from property)

Question 8

A fund manager is concerned that tensions in the middle east may worsen and chooses to hedge be initiating:
A) a LONG position in GILTS
B) a SHORT position in OIL FUTURES
C) a LONG position in OIL FUTURES
D) a SHORT position on the Saudi stock market

Answer 8

C - a LONG position in OIL FUTURES

Tensions in the Middle East have histroically creatwed a oil shock (event risk), going long oil would be an appropriate hedge.

In trading, “long” and “short” are opposite strategies that investors use to profit from the market:
* Long: Involves buying an asset with the expectation that its price will increase. The investor holds the asset until the price stops rising.
* Short: Involves selling an asset that the investor has borrowed, with the expectation that its price will decrease. The investor then buys the asset back at a lower price and returns it to the lender.

Question 9

Which of the following are TRUE of the property market:
1. It is heterogeneous
2. Property investments are generally indivisible
3. Returns include rental income
4. Leasehold property returns may include ground rent

A) All of the above
B) 1, 2 and 4 only
C) 3 only
D) 1 and 2 onlt

Heterogeneous: different in kind; unlike; incongruous

Answer 9

A - All of the above

Question 10

A trustee wishes to select an appropriate benchmark to measure the funds commodity exposures, which of the following would be most relevant?
A) S&P 500 Index
B) Stanley Gibbons 100
C) S&P GSCI Index
D) S&P DJCI Index

Answer 10

D - S&P DJCI Index

• The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.
• Stanley Gibbons 100 - ???
• The S&P GSCI serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange. The index was originally developed in 1991, by Goldman Sachs
• The Dow Jones Commodity Index is a broad measure of the commodity futures market that emphasizes diversification and liquidity.

Question 11

If a property is purchased from an existing property owner and rented back to the seller this is known as:
A) Indirect property investment
B) Sale and lease back
C) Direct property investment
D) Back rental property investment

Answer 11

B - Sale and lease back

Question 12

Indirect property investment might involve which of the following:
1. Property bonds
2. Freehold or leasehold property
3. Shares in property companies

A) None of the above
B) 1 and 3 only
C) 1 and 2 only
D) 2 and 3 only

Answer 12

B - 1 (property bonds) and 3 (Shares in property companies)

Question 13

REITs must distribute what percentage of their profits as dividends?
A) 70%
B) 80%
C) 90%
D) 100%

Answer 13

C - 90%