Free CAIA Level II Accessing Alternative Investments Practice Questions
Accessing alternative investments on CAIA Level II covers hedge fund replication, fund of hedge funds, private vs. listed real estate, commodity access methods (futures, ETFs, direct), digital asset access, and PE performance evaluation using public market equivalents (PME).
118 Questions
37 Easy
58 Medium
23 Hard
2026 Syllabus
Sample Questions
Question 1
Easy
A cash-and-call strategy for gaining commodity exposure combines which two instruments?
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Correct Answer: B
Solution
B is correct. A cash-and-call strategy places the majority of capital in a money market or fixed-income instrument to preserve principal, and uses the remaining capital or interest earned to purchase a call option on a commodity or commodity index. The result is upside participation in commodity appreciation with limited downside (at most the option premium if the cash is not principal-protected).
Question 2
Medium
The Public Market Equivalent (PME) method evaluates private equity performance by:
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Correct Answer: A
Solution
A is correct. The standard Kaplan-Schoar PME methodology mirrors each PE capital call by buying shares in a public index and each PE distribution by selling index shares; the residual index NAV at the fund's end date is compared to the PE fund's residual NAV to determine whether the fund outperformed or underperformed the public market on a dollar-for-dollar basis.
Question 3
Hard
Empirical research on private equity performance has produced which of the following findings regarding PE returns relative to public markets?
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Correct Answer: A
Solution
A is correct. The academic literature (including studies by Kaplan and Schoar, Harris, Jenkinson, and Robinson, among others) finds that PE funds have on average outperformed the S&P 500 on a PME basis, but the premium has compressed in recent vintage years as large capital inflows increased competition for deals and elevated entry multiples, reducing the performance advantage relative to earlier vintage periods.
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