Chartered Financial Analyst Level I Alternative Investments

1.Adrian's hedge fund begins the year at 1,000,000 and ends at 1,200,000 before any fee. The management fee is 2% of beginning assets, so it is 20,000. Profit after that fee is 180,000. The incentive fee is 20% of that profit, with no hurdle. What are total fees?

2.Bianca holds the same hedge fund after fees. It began at 1,000,000. The management fee was 20,000 and the incentive fee was 36,000, so ending net assets are 1,144,000. What is the net return?

3.Caleb's fund has a high-water mark of 1,100,000. After a loss it starts at 1,000,000 and ends at 1,080,000 before fees. The management fee is 2% of beginning assets, or 20,000, so value after that fee is 1,060,000. What incentive fee is due?

4.Dahlia's fund still has a high-water mark of 1,100,000. It rises from 1,060,000 to 1,300,000 before fees. The management fee is 2% of the 1,060,000 beginning assets, or 21,200, leaving 1,278,800. The incentive fee base is profit above the mark after that management fee, at 20%. What is the incentive fee?

5.Elias asks to redeem in month eight. The hedge fund imposes a two-year lockup and the documents give no hardship exception. Results this year have been poor. What happens to the request?

6.Farah asks for her whole hedge-fund account on the next redemption date. A gate lets only 15% of the fund leave that day. Her piece is the pro-rata share of what the gate allows. What does she receive now?

7.Gideon's hedge fund holds an illiquid position in a side pocket. On redemption day he expects cash for the whole account, including that position. What does he actually keep?

8.Helena's high-water mark is already met. The incentive fee is 20% of profit above a 6% hard hurdle, and only that excess counts. The fund begins at 1,000,000 and ends at 1,100,000 before fees. The management fee is 2% of beginning assets, or 20,000. Gain after that fee is 80,000, and the hurdle amount is 60,000. What is the incentive fee?

9.Ivan's fund begins at 1,000,000 and ends at 1,090,000 before fees. The management fee is 1% of beginning assets, which is 10,000, so profit after that fee is 80,000. The hurdle is 50,000 and the fund cleared it. A soft hurdle charges 20% on the whole profit, not only the excess. What is the incentive fee?

10.June's documents charge the management fee on ending assets before fees, not on beginning assets. The fund ends at 1,200,000 before any fee. The rate is 2% of that ending amount. A beginning base of 1,000,000 would have produced 20,000. What is the management fee?

11.Kenji is a limited partner. His private-equity fund has paid-in capital of 80 and has distributed 40. What is DPI?

12.Laila's private-equity fund reports a residual net asset value of 60 and paid-in capital of 80. What is RVPI?

13.Mateo's fund has a DPI of 0.50 and an RVPI of 0.75. Distributions are 40, residual value is 60, and paid-in capital is 80. What is TVPI?

14.Nadia's private-equity fund shows a TVPI of 1.25 after 12 years. She tells the board the fund earned 25% a year. What does that TVPI figure leave out?

15.Oscar reviews a private-equity fund in year two. Fees have been charged and almost nothing has been sold, so the books show a loss. What does that early loss show by itself?

16.Petra committed capital to a private-equity fund, then locked that cash in another long lockup. A capital call arrives with ten days' notice and she cannot pay. The default remedy can forfeit part of her interest. What is the commitment?

17.Quinn committed 100 to a private-equity fund. The fund has called 60, so the unfunded commitment is 40. What does Quinn still have to pay?

18.Rosa's general partner already collected incentive fees. Later losses mean the partner was overpaid on the whole fund. The clawback has no escrow and no guarantee, and the partner has spent the cash. What makes the clause weak?

19.Soren's fund uses a European waterfall. One deal was sold at a large gain, but the rest of the fund has not yet returned contributed capital and the preferred return. What carry can the general partner take now?

20.Talia wants the waterfall that can pay carry on a winning deal before the fund as a whole has returned contributed capital. Which one does that?

21.Uma's fund accrues an 8% preferred return, compounded, not a flat 8% of capital. A contribution of 100 has been outstanding for two years with nothing paid on it. What is the two-year accrual?

22.Victor's fund has just paid the preferred return. The catch-up says the next profits go entirely to the general partner until that partner holds 20% of total profits. A new profit dollar arrives. Who receives it?

23.Willa's fund is past the catch-up. Further profits split 80% to the limited partners and 20% to the general partner. The next profit is 10. How much of that 10 do the limited partners receive?

24.Xavier's private-equity fund is still in its investment period. The management fee is 2% of committed capital, not of capital already invested. The commitment is 100 and 30 has been invested. What is the annual fee?

25.Yasmin's partnership charges 2% of commitments during the investment period, then steps the fee down to invested capital. She accrues 2% of the original commitment for all ten years. What has she done?

26.Zara is offered a co-invest in a single deal beside her main fund. It carries no extra carry. She wants to refuse only that deal. What may she do?

27.Ansel's manager sells a company from an old fund into a continuation fund the same manager runs. The old partners are the sellers and the new fund is the buyer. What does the price need?

28.Bridget receives an early distribution. The partnership still lets the manager recycle that capital and call it again for new investments. She spends the check. What was that cash?

29.Cyrus's named partner resigns. The key-person clause suspends the investment period and lets the limited partners vote to end it. What happens to the existing holdings the next day?

30.Delia's fund allows removal for cause on a lower vote. No-fault removal needs 75% and may require paying the manager a reduced carry. Holders of 51% vote for no-fault removal. What is the result?

31.Emmett's building produces net operating income of 120 and is valued at 1,500. He divides income by value. What is the cap rate?

32.Fiona's building has NOI of 120 and a value of 1,500 at an 8% cap rate. The cap rate rises to 10% and NOI stays 120. What happens to value?

33.Hugo's building has NOI of 120 and debt service of 80. In this simple analysis, NOI comes before interest and before depreciation. What is NOI?

34.Ingrid's building has NOI of 120 and debt service of 80. What is the debt-service coverage ratio?

35.Jonah's lender treats a DSCR of 1.05 as the same cushion as a DSCR of 1.50. One floor of the building could go vacant. What is wrong with that view?

36.Keiko's property has ten identical units and NOI of 120 at full occupancy. One unit goes empty. That unit produced 12 of NOI when it was occupied. Operating costs do not fall because it is empty. What is the new NOI?

37.Leon wants rental buildings in a listed real-estate vehicle. A second vehicle holds mortgages and related paper. Which one fits the buildings he wants?

38.Mira buys a mortgage REIT and calls it a passive owner of apartment buildings. The book is fixed-rate mortgage paper funded with short-term debt. What can hurt that book?

39.Nico's REIT distributes the required fraction of taxable income and therefore avoids entity-level tax on that distributed part. He treats his dividend as automatically tax-free. What does he still owe?

40.Odette adds real-estate depreciation back to net income, adjusts gains on sales, and treats that funds-from-operations figure as cash she can pay out. Maintenance capital still has to be spent. What has she overstated?

41.Paolo's property fund publishes NAV as appraised assets minus liabilities. The appraisal is a year old, and transaction prices have fallen since then. What is that published NAV?

42.Rhea feeds an appraisal series into a mean-variance optimizer. Appraised values move less than transaction prices, so reported volatility and the correlation with stocks are too low. What will the optimizer tend to do?

43.Silas compares a core fund of stabilized, leased buildings with moderate leverage and an opportunistic fund that develops empty buildings with heavy debt. A lease-up fails. Which fund can lose its equity that way?

44.Thea's property is worth 1,000, with debt of 600 and equity of 400. The property value falls 10% to 900. What is the percentage change in equity?

45.Uri holds the same property: value 1,000, debt 600, equity 400. Value rises 10% to 1,100. Debt stays 600. What is the percentage change in equity?

46.Vera's mortgage is non-recourse, and the documents truly cut off recourse. She hands back the keys. The loan balance is above the building's value. What can the lender take?

47.Wesley signed a personal guarantee and still describes the mortgage as non-recourse. A sale of the property leaves a deficiency. What can the lender do?

48.Ximena's tenant has a triple-net lease and pays taxes, insurance, and maintenance. The landlord next door uses a gross lease and pays those costs. How does Ximena's NOI behave?

49.Yara buys a building whose rent resets to market at a review in year five. She capitalizes today's rent as if it were fixed for all ten years and ignores the reset. What has she missed?

50.Zachary's retail tenant pays base rent plus a share of sales above a breakpoint. In a quiet season, sales fall under that breakpoint. What kind of income is the percentage rent?

51.Amira defines roll yield as the return from rolling a futures position, separate from the spot move. The curve is in contango, with futures above spot. Her long-only commodity index rolls forward. What is the sign of the roll yield?

52.Bruno uses that same roll yield: the return from rolling futures, separate from the spot move. The curve is in backwardation, so futures sit below spot. His long-only index rolls forward. What is the roll yield?

53.Celeste's commodity index has a spot return, a roll yield, and a collateral yield. Treasury bills posted as collateral earn interest even though the futures price does not change. She reports only the spot move, and that collateral interest is positive. What has she done?

54.Diego's commodity index has a spot return of 4%, a roll yield of -2%, and a collateral yield of 1%. What is the total index return?

55.Esther runs an airline that will buy fuel later. A producer hedges by selling futures. A consumer hedges by buying futures. Which trade fits Esther?

56.Felix stores oil and sells the deferred future because the curve pays more than storage and financing. He is not forecasting a spike in the oil price. What position is this?

57.Greta studies gold futures. Gold held as a financial asset often has a low convenience yield relative to oil, because industry does not need a working inventory in the same way. The curve sits above spot by about the financing cost. What does that shape fit?

58.Hassan's toll road has a long concession and tolls linked to inflation. A regulator can still cut the allowed return. He describes the road as a bond. What does that description leave out?

59.Imani compares two power plants. One is a merchant plant selling into the spot electricity market. The other has a fixed offtake with one buyer. Which plant bears the power-price swing?

60.Jules finances a public-private road. One contract pays if the road is open, even when traffic is light. Another pays according to how many cars use it. Which contract pays for keeping the road open rather than for the number of cars?

61.Kira's farmland return is crop prices plus the change in land price, minus costs. A drought cuts this year's crop. She writes the land value to zero because of that harvest. What has she done?

62.Luca owns timber and delays the harvest because prices are low. Growth will slow if he waits too long, and fire and pests remain. What is true of that option to wait?

63.Maren's timber fund marks unsold trees to a model rather than to a completed sale. Reported volatility looks quiet. The same warning that applies to real-estate appraisals applies here. What does that volatility miss?

64.Nabil's long/short equity fund is short a stock that started as 10% of the book. The stock doubles, and the short is already a large loss. If the stock keeps rising, what has no limit?

65.Olga runs a market-neutral book aimed at a beta near zero. This month the long names fall and the short names rise. She tells the client a low beta meant the book could not lose. What is the correction?

66.Priya's global macro manager holds rates, currencies, and equity indexes that all express one view on a single central bank. The positions sit in different markets. The view is wrong. Why can the losses arrive together?

67.Rafael runs a managed-futures trend system. It has done well when markets trend and poorly when they chop. This quarter the markets reverse again and again. When does this system struggle?

68.Sable's merger-arbitrage book is long the target and short the acquirer in a stock-for-stock deal. The deal breaks. The target falls and the acquirer rises. What happens to the two legs?

69.Tomas buys a cash-merger target at 28. The deal price is 30 if it closes, so the spread is 2. The deal breaks and the target returns to 22. What is his loss per share?

70.Una buys a distressed bond at 40, hoping a restructuring returns 70. The plan instead yields 25, and the case takes years. What is the result from her cost of 40?

71.Viktor is long a convertible bond and short the stock, hedged with the delta. The stock hedge works. Credit spreads then widen and the bond cheapens. Which move hurts even with that stock hedge in place?

72.Wren's fund of funds charges a 1% management fee on the assets in that fund, on top of the fees the underlying hedge funds already charge. She compares the fund-of-funds gross return with one underlying manager's net return. What is she mixing?

73.Yusuf's consultant presents the average return of a hedge-fund database that drops funds after they shut down. The dead funds are gone from the file. What is wrong with calling that average the opportunity set?

74.Zola's fund starts reporting to a database after a strong period and includes that good history. Any weak years before the listing are absent. What is wrong with the record?

75.Arthur's database builds the month from the latest file received. Several managers file late only when the month was bad, and those returns are not in yet. He treats the file as a complete month-end set. What is the published month?

76.Beatriz may need cash. Her hedge fund has a gate and a lockup. An optimizer likes the fund because the monthly standard deviation is low. What does that volatility figure leave out?

77.Conrad's fund starts at 1,000, falls to 800, then ends the next year at 1,000 before fees. Over two years he made nothing. One term is an annual hurdle with no memory of the loss. The other is a high-water mark. Which term stops the incentive fee on that recovery?

78.Dina's fund crystallizes the incentive fee and the high-water mark steps up. The manager takes the fee in new shares rather than in cash. What does that share-paid fee do?

79.Edgar's side letter has a most-favored-nation clause. The manager later gives another limited partner better economic terms. Edgar also wants to veto a deal the manager has discretion to make. What does the clause give him?

80.Freya sits on the limited-partner advisory committee, which can clear conflicts. She tells the general partner which trade to place. What is that seat allowed to do?

81.Graham has no side letter. Another investor's side letter gives that investor better liquidity than the partnership agreement shows everyone else. Graham is judging the gate without knowing the letter exists. What does the side letter change?

82.Hana prices a mezzanine loan at the same coupon as the senior secured loan to the same borrower. The mezzanine stands behind the senior loan and includes no warrants. What is wrong with that price?

83.Idris lends on a covenant-lite loan with fewer maintenance tests than a covenant-heavy loan to the same borrower. He learns of trouble later. The spread equals the heavier loan's spread. What did he give away?

84.Joelle's borrower pays interest in kind. Unpaid interest is added to principal instead of being paid in cash. She treats it as cash she received and chose to lend back. What is that interest actually doing?

85.Kasper holds a loan plus warrants, an equity kicker on the side. He values the package as a bond only and gives the warrants no chance of being wiped out. What is the warrant?

86.Linnea's site has land of 200 and construction still to spend of 500. A sale at 900 is two years away, and the permits are not issued. She marks the unfinished project at 900 in today's NAV. What is wrong with that mark?

87.Malik's construction loan funds draws as the building rises. Work stops halfway. He still carries the completed appraisal as the collateral value. What does the lender actually have?

88.Noor owns a hotel, where income depends on revenue per available room and occupancy, and a warehouse on a ten-year lease. A one-year travel slump hits. Which asset's income resets with travel?

89.Otto's warehouse is on a ten-year lease to one tenant. He asks whether the risk looks more like a hotel's nightly bookings or more like a bond. What is the main risk?

90.Paloma switches farmland from a crop-share lease to cash rent. The tenant now bears crop-price risk, and Paloma receives a fixed rent. She still depends on the tenant's ability to pay. What did she give up?

91.Quentin's advisor earns the 3% commodity index return. The fee is a 1% management fee on that index, plus 20% of the positive return left after the management fee. There is no hurdle, and the fee base is the index. What is his net return?

92.Renata's strategy worked in a fund of 200 million. The same book is now 5 billion, and the orders move the market. She uses the small-fund record as the return to expect from here. What does the larger size change?

93.Stefan bought a merger-arbitrage fund. The manager adds a large unhedged emerging-market equity bet. Stefan did not sign up for that risk. How should he treat the new bet?

94.Thora submitted a redemption. The hedge fund then suspends its own NAV calculation in a crisis. The assets may be truly unpriceable, which can limit a fire sale, and the suspension also traps people. Who cannot leave while it lasts?

95.Ulric seeds a new hedge fund. In exchange for the early money he receives a share of the manager's fee revenue. The fund later grows. What does he own besides his investment in the fund?

96.Violet wants to see every position in a liquid long/short book and to liquidate without a gate. A private-equity drawdown fund cannot offer that. Which structure fits the long/short book?

97.Walter's private-equity fund calls capital over years. Uncalled cash sits in Treasury bills. His time-weighted return blends those bills with the fund, and he compares the blend with a fully invested stock index. What is a fairer look at the private-equity piece alone?

98.Xia's public market equivalent is 0.90. A result of 1.10 would mean the fund's contributions and distributions beat the path of the same cash flows in a stock index. A figure above 1 beats that path. What does 0.90 mean?

99.Yorick buys a limited-partner interest in the secondary market at 85% of reported NAV. If the assets are really worth 85, he paid fair value. When is the discount a bargain?

100.Zeke wants only an old fund in a secondary purchase. The terms require him to commit new money to the manager's next fund, and the old interest comes at a discount. He dislikes the new strategy. How should he treat the discount?

101.Amina is told her private-equity fund has dry powder of 40. She thinks the 40 is cash on the fund's balance sheet that she can spend, already earning a return. What is dry powder?

102.Bodhi compares a 2020 private-equity vintage with a 2024 vintage. A vintage year is the year the fund started investing. He lines up their cumulative TVPI in calendar 2026. Which comparison is fairer?

103.Cora's company was bought in a club deal. Several private-equity firms share it, and decisions have been slow. She assumes the operating partner controls the board. What should she check?

104.Darian buys a private company and puts part of the price on an earnout tied to later revenue. The seller keeps running the company and manages to that metric. What risk did the revenue earnout create?

105.Esme's fund has the portfolio company borrow and then dividend the cash to the fund. The company did not sell its operations. DPI rises early. What did the dividend recap change?

106.Florian's fund put in equity of 100. A dividend recap pays the fund 40, and the remaining equity is marked at 90, so DPI is 0.40, RVPI is 0.90, and TVPI is 1.30. The new borrowing left leverage higher. He celebrates the 1.30. What is he ignoring?

107.Giselle's tolls rise with the inflation index, and operating costs rise just as fast. She adds the full inflation rate to last year's profit and does not inflate the costs. What has she done to next year's cash flow?

108.Harun's committee compares appraisal-based real estate, smoothed hedge-fund marks, and a private-equity NAV with liquid stock prices. Alternatives look like the calm diversifier, and the committee wants to cut the stock allocation on that picture alone. What is wrong with the picture?