AIP AIP Alternative Investments & Derivatives 2

Question 1

A put option is most useful to an investor who wants to:

Accepted Answer

Hedge against a decline in the value of a stock they own

Answer

A put option gives the holder the right to sell at the strike price, providing downside protection if the underlying asset's value falls.

Question 2

What does the term 'alpha' measure in the context of alternative investments?

Accepted Answer

Excess return generated by a manager above a benchmark on a risk-adjusted basis

Answer

Alpha represents the value a portfolio manager adds (or subtracts) beyond the return explained by market exposure (beta).

Question 3

Commodity futures contracts are primarily used by producers and consumers to:

Accepted Answer

Lock in a future price to manage commodity price risk

Answer

Hedgers use commodity futures to fix buy or sell prices in advance, reducing uncertainty about future costs or revenues.

Question 4

What is the primary risk associated with writing (selling) a naked call option?

Accepted Answer

Potential for unlimited losses if the underlying asset price rises sharply

Answer

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.

Question 5

Which of the following is a key feature of a collateralized loan obligation (CLO)?

Accepted Answer

It pools corporate loans and issues tranches with varying risk/return profiles

Answer

A CLO pools a diversified portfolio of corporate loans and issues multiple debt tranches that differ in seniority, credit quality, and yield.

(AIP) Accredited Investment Professional Certification Practice Test

(AIP) Accredited Investment Professional Certification Practice Test

AIP AIP Alternative Investments & Derivatives 2