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

Distressed debt funds purchase discounted bonds or loans of financially troubled companies, seeking to profit from restructuring or recovery of the debt's value.

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

Rule 506(b) permits sales to up to 35 non-accredited but sophisticated investors, in addition to unlimited accredited investors, without general solicitation.

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

Infrastructure assets typically generate stable, long-term cash flows often linked to inflation through regulated pricing or concession agreements, making them suitable for pension funds and endowments.

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

Suitability is based on client-specific factors such as risk tolerance, liquidity needs, time horizon, and financial status — not on whether returns exceed a benchmark index.

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

Market neutral strategies offset long and short equity positions to achieve near-zero net market exposure (beta), generating returns from stock selection rather than overall market direction.

CFS - Certified Fund Specialist Practice Test

CFS - Certified Fund Specialist Practice Test

CFS Alternative Investments 3