Investment Jobs Alternative Investments Test 1

Question 1

Which type of alternative investment involves buying controlling interests in private companies with the intent to improve and sell them?

Accepted Answer

Private equity (buyout funds)

Answer

Private equity buyout funds acquire controlling stakes in established companies, typically using leverage, improve operations, and exit via sale or IPO.

Question 2

What is the standard fee structure for most hedge funds (the '2 and 20' model)?

Accepted Answer

2% management fee and 20% performance fee on profits

Answer

The '2 and 20' fee structure means hedge funds charge a 2% annual management fee on assets under management plus a 20% performance fee on any profits generated.

Question 3

What is a Real Estate Investment Trust (REIT) and what tax advantage does it offer?

Accepted Answer

A publicly traded company that owns income-producing real estate; must distribute 90% of taxable income to avoid corporate tax

Answer

A REIT is a company that owns income-producing real estate and must distribute at least 90% of its taxable income as dividends to qualify for pass-through tax treatment, avoiding corporate-level tax.

Question 4

In venture capital, what does 'Series A' funding typically represent?

Accepted Answer

The first significant round of institutional financing after early-stage proof of concept

Answer

Series A is typically the first significant round of venture capital financing, coming after seed funding, and is used by startups that have demonstrated early traction to scale operations.

Question 5

What is 'carried interest' in private equity and hedge funds?

Accepted Answer

The fund manager's share of profits above a specified return threshold

Answer

Carried interest (or 'carry') is the share of investment profits, typically 20%, that fund managers receive as performance compensation once returns exceed the hurdle rate.

Investment Practice Test

Investment Practice Test

Investment Jobs Alternative Investments Test 1