Alternative Investments — CFA® Program Level I

Question 1

Two newly launched 10-year buyout funds are identical except for how they charge management fees during the investment period: Kalderon Fund I charges 2% a year on committed capital, while Sabinar Fund I charges 2% a year on invested capital. In the first two years, when only a small part of each fund's commitments has been called and no investments have been sold, Kalderon Fund I will most likely show:

Accepted Answer

a deeper negative net return, because its fees are large relative to the capital invested so far

Answer

a smaller negative net return, because a fee on committed capital is fixed and fully predictable

Answer

the same net return, because management fees affect returns only once investments are sold

Question 2

Yoav Ben-Ezri manages a venture capital fund that invests in early-stage companies developing new medical devices. Which of the following is least likely a characteristic of his fund's investments?

Accepted Answer

Companies are financed mainly with debt repaid from operating cash flow

Answer

A few highly successful companies generate most of the fund's total gains

Answer

Capital is provided in rounds tied to reaching specific business milestones

Question 3

Ishani Varma is valuing Quellbrook Terraces, a 96-unit apartment community for residents aged 55 and over, with the direct capitalization method. For the coming year she projects gross potential rent of $3,180,000, vacancy and collection loss of 4.5% of gross potential rent, and operating expenses of $1,265,000. The market capitalization rate for similar properties is 5.75%. The value of the property is closest to:

Accepted Answer

$30,815,652

Answer

$31,805,652

Answer

$52,815,652

Sample questions