AIP Alternative Investments & Derivatives Flashcards
6 cards from real AIP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 AIP Alternative Investments & Derivatives flashcards as text
A put option is most useful to an investor who wants to:
Answer: Hedge against a decline in the value of a stock they own
A put option gives the holder the right to sell at the strike price, providing downside protection if the underlying asset's value falls.
What does the term 'alpha' measure in the context of alternative investments?
Answer: Excess return generated by a manager above a benchmark on a risk-adjusted basis
Alpha represents the value a portfolio manager adds (or subtracts) beyond the return explained by market exposure (beta).
Commodity futures contracts are primarily used by producers and consumers to:
Answer: Lock in a future price to manage commodity price risk
Hedgers use commodity futures to fix buy or sell prices in advance, reducing uncertainty about future costs or revenues.
What is the primary risk associated with writing (selling) a naked call option?
Answer: Potential for unlimited losses if the underlying asset price rises sharply
A naked call writer faces theoretically unlimited loss because there is no cap on how high the underlying asset price can rise, forcing the writer to buy it at market to deliver.
Which of the following is a key feature of a collateralized loan obligation (CLO)?
Answer: It pools corporate loans and issues tranches with varying risk/return profiles
A CLO pools a diversified portfolio of corporate loans and issues multiple debt tranches that differ in seniority, credit quality, and yield.
In private equity, a 'general partner' (GP) typically:
Answer: Manages the fund, makes investment decisions, and earns carried interest
The GP actively manages the private equity fund, sources and executes deals, and is compensated through management fees and a share of profits known as carried interest.