NAME :

CLASS :
Alter Test - TE2
28 Questions DATE :

1. Hedge funds are similar to private equity funds in that both:

A. are typically structured as C. do not earn an incentive fee until

A B
partnerships. the initial investment is repaid.

B. assess management fees based

C
on assets under management.

2. Which of the following is most likely a private real estate investment vehicle?

C. Collateralized mortgage B. Real estate investment trust

A B
obligation

C A. Real estate limited partnership

3. If a commodity’s forward curve is in contango, the component of a

commodities futures return most likely to reflect this is:

A B. the roll yield. B A. spot prices.

C C. the collateral yield.

4. A hedge fund invests primarily in distressed debt. Quoted market prices are
available for the underlying holdings but they trade infrequently. Which of the
following will the hedge fund most likely use in calculating net asset value for
trading purposes?

A. Average quotes C. Bid prices for short positions and

A B
ask prices for long positions

B. Average quotes adjusted for

C
liquidity
5. At the first of the year, an investor decides to invest $1.5 million in a hedge
fund with an incentive fee of 15% and a hard hurdle rate of 4%. At the end of
the year, the fund has a return of 23.3%. The incentive fee payment that the
general partner of the fund earned based on this client’s investment at the
end of the year is closest to?

A C. $38,445 B B. $52,425

C A. $43,425

6. Commodity futures prices are most likely in backwardation when:

A B. storage costs are high. B A. interest rates are high.

C C. the convenience yield is high.

7. The three main sources of return for commodities futures contracts most
likely are:

A. convenience yield, dividend yield, B. collateral yield, roll yield, and

A B
and spot price return. spot price return.

C. collateral yield, convenience

C
yield, and roll yield.

8. The first stage of financing at which a venture capital fund most likely invests is
the:

A B. mezzanine stage. B A. seed stage.

C C. angel investing stage.

9. An investor seeks a current income stream as a component of total return,

and desires an investment that historically has low correlation with other asset
classes. The investment most likely to achieve the investor’s goals is:

A B. collectibles. B C. commodities.

C A. timberland.
10. An effective risk management process used by alternative investment funds
most likely includes:

A B. internal custody of assets. B A. in-house valuations.

C. segregation of risk and

C
investment process duties.

11. Which of the following statements concerning the historical record of

alternative investments is most likely correct?

C. The inclusion of previous return A. The exclusion of returns of funds

data for funds that enter the index that have been liquidated leads to
A B
leads to a downward bias in index an upward bias in index
performance. performance.

B. The use of appraised values

C instead of market prices leads to an
upward bias in volatility.

12. Which of the following least likely describes an advantage of investing in hedge
funds through a fund of funds? A fund of funds may provide investors with:

B. lower fees because of economies C. access to managers who can

A B
of scale. negotiate better redemption terms.

C A. access to due diligence expertise.

13. Compared to traditional investments, alternative investments least likely

demonstrate which of the following characteristics?

B. Underlying investments that are C. A high degree of regulation

A B
illiquid

C A. Narrow manager specialization

14. Alternative investment funds are typically managed:

C. assuming that markets are A. actively.

A B
efficient.

C B. to generate positive beta return.

15. A hedge fund limited partnership agreement describes the general partner’s
total fees for each year as follows: The general partner will measure the fair
value of the fund’s assets at the beginning of the year (net of fees from the
previous year) and the fair value of the fund’s assets at the end of the year.
The general partner will receive 15% of any increase in fair value in excess of
the 1-year US Treasury yield at the beginning of the year. This fee structure
most likely includes a:

A A. hard hurdle rate. B B. management fee.

C C. high-water mark provision.

16. The privatization of an existing hospital is best described as:

C. an economic infrastructure B. a brownfield investment.

A B
investment.

C A. a greenfield investment.

17. Private equity funds are most likely to use:

A B. leveraged buyouts. B C. market-neutral strategies.

C A. merger arbitrage strategies.

18. An investor may prefer a single hedge fund to a fund of funds if he seeks:

A B. better redemption terms. B A. due diligence expertise.

C C. a less complex fee structure.

19. The most likely impact of adding commodities to a portfolio of equities and
bonds is to:

A C. reduce exposure to inflation. B A. increase risk.

C B. provide higher current income.

20. A least likely reason for investors to include commodity derivatives in their
investment portfolios is:

B. it eliminates the need to A. commodity-related stocks’

understand the physical supply positive correlation with the overall
A B
chain and general supply–demand equity market.
dynamics of a commodity.

C. the tendency for commodity

C prices to be positively correlated
with inflation.

21. In commodity futures market pricing, when the convenience yield is higher
than the cost of carry, the roll yield is positive for:

A B. short futures. B A. long futures.

C C. both long and short futures.

22.

A A. 10.88%. B C. 9.68%.

C B. 9.79%.

23. Compared with traditional investments, over longer periods, alternative

investments are least likely to have:

A A. better diversifying power. B B. higher expected returns.

C C. more efficiently priced assets.

24. Relative to traditional investments, alternative investments are least likely to
be characterized by:

A B. limited historical return data. B A. high levels of transparency.

C. significant restrictions on
C
redemptions.

25. Which of the following is most likely a private equity strategy?

A A. Merger arbitrage B B. Venture capital

C C. Quantitative directional

26. Hedge fund losses are most likely to be magnified by a:

A A. margin call. B B. lockup period.

C C. redemption notice period.

27. Compared with direct investment in infrastructure, publicly traded

infrastructure securities are characterized by:

C. greater control over the A. higher concentration risk.

A B
infrastructure assets.

C B. more-transparent governance.

28. United Capital is a hedge fund with $250 million of initial capital. United
charges a 2% management fee based on assets under management at year
end, and a 20% incentive fee based on returns in excess of an 8% hurdle rate.
In its first year, United appreciates 16%. Assume management fees are
calculated using end-of-period valuation. The investor’s net return assuming
the performance fee is calculated net of the management fee is closest to:

A C. 12.80%. B B. 12.54%.

C A. 11.58%.
Answer Key

1. a 2. c 3. a 4. c

5. c 6. c 7. b 8. b

9. c 10. c 11. b 12. a

13. b 14. b 15. a 16. b

17. a 18. c 19. a 20. a

21. b 22. c 23. c 24. b

25. b 26. a 27. c 28. b