Free CFA Level III: Private Markets Infrastructure Practice Questions
Infrastructure investing on CFA Level III covers infrastructure fund structures, public-private partnerships (PPPs), DCF and comparable valuation approaches, and the risk-return profile of core, core-plus, and value-add infrastructure assets.
Sample Questions
Question 1
Easy
Political risk in infrastructure investing refers to:
Solution
C is correct.
Political risk encompasses the range of government actions that can adversely affect infrastructure investments: (1) Regulatory changes — modifying allowed returns, tariff structures, or environmental requirements. (2) Contract renegotiation — governments pressuring concession holders to accept less favorable terms. (3) Tax changes — imposing new taxes on infrastructure revenues. (4) Expropriation — in extreme cases, government seizure of private infrastructure assets. This risk is particularly relevant for infrastructure because: long concession periods span multiple political administrations, and essential services are politically sensitive.
Political risk encompasses the range of government actions that can adversely affect infrastructure investments: (1) Regulatory changes — modifying allowed returns, tariff structures, or environmental requirements. (2) Contract renegotiation — governments pressuring concession holders to accept less favorable terms. (3) Tax changes — imposing new taxes on infrastructure revenues. (4) Expropriation — in extreme cases, government seizure of private infrastructure assets. This risk is particularly relevant for infrastructure because: long concession periods span multiple political administrations, and essential services are politically sensitive.
Question 2
Medium
Using Exhibit 3, NorthStar Toll Road's estimated Year 1 EBITDA is closest to:
Solution
C is correct. Revenue equals traffic multiplied by the average toll: . Applying the 68% operating margin yields EBITDA of , which rounds to approximately $91.4 million.
Question 3
Hard
Considering the pension fund's three stated objectives and the data in Exhibit 1, which single asset BEST satisfies all three objectives simultaneously?
Solution
A is correct. The three objectives must be tested jointly. NorthStar is the only asset that clears all three: its tolls are CPI-indexed (inflation protection satisfied); its Year-1 cash yield of 6.0% exceeds the 5% hurdle in the first three years of ownership (current-yield objective satisfied in the relevant window); and its 35-year brownfield concession is the longest of the three, best matching long-duration pension liabilities (liability-matching objective satisfied). Helios and Meridian each fail at least one criterion, so they cannot be the single best fit even though their return profiles are attractive on other dimensions.