CFS Alternative Investments 3

Question 1

A 'distressed debt' hedge fund strategy involves:

Accepted Answer

Buying debt securities of companies in or near bankruptcy at discounted prices

Answer

Purchasing investment-grade bonds at par value for income

Answer

Short-selling bonds of financially stable corporations

Answer

Investing only in US Treasury securities during market downturns

Question 2

Under Regulation D of the Securities Act, Rule 506(b) allows issuers to sell securities to a maximum of how many non-accredited but sophisticated investors?

Accepted Answer

35

Answer

5

Answer

100

Answer

Unlimited

Question 3

Infrastructure investments (such as toll roads, airports, and utilities) are attractive to long-term investors primarily because they offer:

Accepted Answer

Stable, predictable cash flows with inflation-linked revenue streams

Answer

High daily trading volume and price transparency

Answer

Minimal regulatory oversight and low capital requirements

Answer

Short payback periods of 1–3 years

Question 4

A CFS practitioner recommending alternative investments must ensure the investment is 'suitable' by considering all of the following EXCEPT:

Accepted Answer

Whether the investment's historical returns exceed the S&P 500

Answer

The client's liquidity needs and time horizon

Answer

The client's ability to withstand potential loss of capital

Answer

The client's accredited investor status and risk tolerance

Question 5

What distinguishes a 'market neutral' hedge fund strategy from a traditional long-only equity fund?

Accepted Answer

It maintains balanced long and short equity positions to eliminate broad market beta

Answer

It invests solely in fixed income instruments to avoid equity risk

Answer

It hedges currency risk only while maintaining full equity exposure

Answer

It restricts investments to dividend-paying large-cap stocks

Question 6

An investor in a master limited partnership (MLP) focused on energy infrastructure primarily benefits from:

Accepted Answer

Pass-through cash distributions and potential tax-deferred income through depreciation deductions

Answer

FDIC-insured principal and fixed monthly distributions

Answer

Publicly guaranteed dividends backed by US government bonds

Answer

Daily liquidity with no tax reporting complexity

Question 7

The primary purpose of a 'hurdle rate' in a private equity fund is to:

Accepted Answer

Ensure the fund manager only earns carried interest after delivering a minimum return to investors

Answer

Set the minimum leverage ratio for portfolio company acquisitions

Answer

Define the maximum allocation to any single portfolio company

Answer

Establish the benchmark against which manager skill is evaluated publicly