SS 18. Alternative Investments

Question 1

The shares of closed-end funds are:

Answer 1

listed on a stock exchange.

Question 2

An investor may prefer investing into a fund of hedge funds rather than a single hedge fund if they seek:

Answer 2

Due diligence expertise

Question 3

The real estate index most likely to suffer from sample selection bias is a(n):

Answer 3

repeat sales index

Only properties that sell in each period and are included in the index and vary over time which may not be representative of the whole market.

Question 4

The (highest/lowest) risk infrastructure investments have higher dividend payout ratios

Answer 4

Lowest

Question 5

Capital provided for companies moving toward operation but before commercial manufacturing and sales have occurred best describes which stage in venture capital investing?

Answer 5

Early stage

Question 6

A commodity market is in contango when futures prices are:

Answer 6

higher than the spot price.

Question 7

The three main approaches to valuing real estate are:

Answer 7

cost, comparative sales, and income

Question 8

Value at Risk (VaR) is defined as:

Answer 8

the minimum amount of loss expected over a given time period at a given probability level.

Question 9

In comparison to traditional assets, alternative investments tend to invest into:

(Liquid/illiquid) assets

Utilise (higher/lower) degrees of leverage

charge (higher/lower) fees.

Answer 9

illiquid assets

higher degrees of leverage

higher fees

Question 10

___________ ________ is an equity strategy that uses technical analysis to identify over- and underpriced securities, buy the underpriced ones, and short the overpriced ones.

Answer 10

Quantitative directional

Question 11

A private equity firm sells a portfolio company to a buyer that is active in the same industry as the portfolio company. This transaction is best described as a:

Answer 11

Trade Sale

Question 12

Capital provided for companies moving toward operation but before commercial manufacturing and sales have occurred best describes which stage in venture capital investing?

Answer 12

Early stage

Question 13

The income approach uses net operating income (after/before) financing and income taxes

Answer 13

Before

Question 14

The total expense ratio of an investment company is generally:

Answer 14

inversely proportional to the increase in assets under its management.

Question 15

Management fees for a private equity fund are based on the:

Answer 15

total committed capital minus capital returned from investments that are exited

Question 16

Alternative investments that rely on estimates rather than observable market prices for valuation purposes are most likely to report:

Answer 16

volatility of returns that is understated.

Question 17

List the types of risk that use of derivatives introduces (4):

Answer 17

Operational (settlement)

Financial

Counterparty

Liquidity

Question 18

The market approach to valuing portfolio companies in private equity firms is based on:

Answer 18

Multiples

The market approach to valuing portfolio companies uses multiples of different measures that are compared with similar companies.

Question 19

The (highest/lowest) risk infrastructure investments have more stable cash flows

Answer 19

Lowest

Question 20

Which of the methods to value property uses a discounted cash flow valuation approach?

Answer 20

Income method

Question 21

Market Value =

Answer 21

Net Operating Income
/
Market capitalization rate

Question 22

The real estate valuation method that uses a discounted cash flow model is:

Answer 22

Income approach