Free CFA Level I Alternative Investments Practice Questions
Alternative investments on the CFA Level I exam cover real estate, private equity, hedge funds, commodities, and infrastructure as components of a diversified portfolio. Weighted 5-8% (CFA Institute).
Sample Questions
Question 1
Easy
Decentralized finance (DeFi) is best described as:
Solution
A is correct.
DeFi encompasses financial applications built on decentralized blockchain networks, using smart contracts to automate services such as lending, borrowing, trading, and insurance without relying on traditional financial intermediaries like banks.
DeFi encompasses financial applications built on decentralized blockchain networks, using smart contracts to automate services such as lending, borrowing, trading, and insurance without relying on traditional financial intermediaries like banks.
Question 2
Medium
Which of the following best describes a 'side pocket' in a hedge fund?
Solution
B is correct.
A side pocket segregates illiquid, hard-to-value, or distressed assets from the main liquid portfolio. Investors allocated to the side pocket cannot redeem that portion until those assets are sold or otherwise realized, preventing forced sales at depressed prices and treating all investors equitably regardless of redemption timing.
A side pocket segregates illiquid, hard-to-value, or distressed assets from the main liquid portfolio. Investors allocated to the side pocket cannot redeem that portion until those assets are sold or otherwise realized, preventing forced sales at depressed prices and treating all investors equitably regardless of redemption timing.
Question 3
Hard
A property has gross potential rental income of 1,200,000, a vacancy rate of 8%, operating expenses of 350,000, and a cap rate of 7%. Using the direct capitalization method, the estimated property value is closest to:
Solution
B is correct.
The direct capitalization method values a property as . First, compute effective gross income (EGI): . Then subtract operating expenses to get net operating income (NOI): . Finally, capitalize: , which is closest to 10,860,000.
The direct capitalization method values a property as . First, compute effective gross income (EGI): . Then subtract operating expenses to get net operating income (NOI): . Finally, capitalize: , which is closest to 10,860,000.