CFS Alternative Investments 2

Question 1

Real estate investment through a Real Estate Limited Partnership (RELP) primarily offers investors:

Accepted Answer

Pass-through income and potential tax benefits with limited liability

Answer

Full personal liability for partnership debts

Answer

Daily liquidity similar to publicly traded REITs

Answer

FDIC protection on invested capital

Question 2

Commodity futures contracts are used in portfolio management primarily to:

Accepted Answer

Provide inflation hedging and diversification through non-correlated returns

Answer

Guarantee a fixed return on investment

Answer

Eliminate all downside risk in a portfolio

Answer

Generate dividend income from physical assets

Question 3

A 'venture capital' fund most commonly invests in:

Accepted Answer

Early-stage or startup companies with high growth potential

Answer

Distressed public companies undergoing bankruptcy restructuring

Answer

Investment-grade corporate bonds for stable income

Answer

Large-cap dividend-paying stocks

Question 4

Which of the following best describes a 'high-water mark' provision in a hedge fund?

Accepted Answer

A threshold ensuring performance fees are only paid on new net profits above previous peak NAV

Answer

The maximum leverage ratio allowed by the fund's charter

Answer

The minimum investment required to participate in the fund

Answer

A cap on annual withdrawals by limited partners

Question 5

Managed futures funds primarily derive returns by:

Accepted Answer

Trading futures contracts across asset classes based on systematic trend-following or discretionary strategies

Answer

Holding physical commodities in warehouse storage

Answer

Investing in futures-linked ETFs on public exchanges only

Answer

Providing loans to commodity producers

Question 6

The J-curve effect in private equity refers to:

Accepted Answer

Early negative returns due to fees and capital deployment, followed by positive returns as investments mature

Answer

A gradual increase in investor returns from day one of investment

Answer

An upward-sloping relationship between risk and return in buyout funds

Answer

The immediate distribution of income from leveraged buyouts

Question 7

Which of the following is a key risk unique to alternative investments compared to traditional mutual funds?

Accepted Answer

Illiquidity risk due to limited redemption opportunities

Answer

Exposure to interest rate changes

Answer

Sensitivity to market volatility

Answer

Dividend reinvestment risk