CPM Alternative Investments in Portfolios

Question 1

Which of the following is considered an alternative investment in a traditional portfolio context?

Accepted Answer

Private equity, hedge funds, and real assets

Answer

U.S. Treasury bonds

Answer

S&P 500 index funds

Answer

Savings accounts

Question 2

The primary reason portfolio managers include alternative investments is to:

Accepted Answer

Improve risk-adjusted returns through diversification due to low correlation with traditional asset classes

Answer

Guarantee higher returns than equities

Answer

Eliminate all market risk

Answer

Reduce portfolio complexity

Question 3

Private equity investments are characterized by:

Accepted Answer

Illiquidity, long lock-up periods, and potential for higher returns than public markets as compensation for illiquidity

Answer

Daily liquidity and market-quoted prices

Answer

Low risk and stable returns

Answer

High transparency and frequent reporting

Question 4

A hedge fund using a market-neutral strategy aims to:

Accepted Answer

Generate returns uncorrelated with the broad market by balancing long and short positions to offset market risk

Answer

Maximize beta exposure to the equity market

Answer

Track the S&P 500 index closely

Answer

Invest exclusively in government bonds

Question 5

Real estate investment trusts (REITs) provide investors with exposure to real estate while maintaining:

Accepted Answer

Daily liquidity, as REITs trade on public stock exchanges

Answer

The illiquidity of direct property ownership

Answer

Freedom from all market volatility

Answer

Tax-exempt status on all income

Question 6

Commodities are included in a portfolio primarily to provide:

Accepted Answer

Inflation hedging and diversification, as commodity prices often rise with inflation

Answer

High dividend income

Answer

Guaranteed capital preservation

Answer

Fixed income returns