Practice Questions: Introduction to Alternative Investments
Question 1
Which of the following describes best the difference between traditional and alternative investments?
A. Traditional investments are based on fundamental analysis for stock selection and buy and hold
strategies, while alternative investments deploy active high-frequency trading strategies
B. Traditional investments include long-only positions in equities, bonds, and cash, while
alternative investments include all other types of investments
C. Traditional investments include common and long-established asset classes, such as stocks,
bonds, real estate, and commodities, while alternative investments include newer asset classes,
such as private equity and hedge funds
Question 2
Which are the main categories of alternative investments?
A. Hedge Funds, Venture Capital, Real Estate, Commodities and Infrastructure
B. Hedge Funds, Private Equity, and Real Estate
C. Hedge Funds, Private Equity Funds, Real Estate, Commodities, Infrastructure and Other (tangible
and intangible assets including art, collectibles, patents, etc.)
Question 3
What are the main benefits of alternative investments?
A. Low correlations with traditional investments and higher returns over long periods
B. Low risk and high expected return
C. High liquidity and efficient markets
Question 4
What are the main types of hedge fund strategies?
A. Event-driven, relative value, macro, and equity hedge
B. Merger arbitrage, special situations and multi-strategy
C. Market neutral, fundamental value, relative value, quantitative, multi-strategy and event-driven
strategies
Question 5
Which of the following is the most common private equity strategy?
A. Venture capital (VC)
B. Leveraged buy-out (LBO)
C. Management buyout (MBO)
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Question 6
Which statement best describes the types of private equity exit methods?
A. Trade sale, IPO, Recapitalization
B. Trade sale, IPO, Recapitalization, Management buy-in (MBI)
C. Trade sale, IPO, Recapitalization, Secondary sale, Write off/liquidation
Question 7
Homes purchased for rental income are considered an investment in:
A. Commercial property
B. Residential property
C. Investment property
Question 8
Timberland and farmland are categories of real estate investments:
A. Yes
B. No
C. Not defined
Question 9
What are the main approaches to valuing real estate?
A. Discounted Cash Flow (DCF) and Net Asset Value (NAV)
B. Comparable sales approach, income approach, and cost approach
C. Income approach and comparable multiples approach
Question 10
What is not a type of infrastructure investment?
A. Greenfield
B. Whitefield
C. Brownfield
Question 11
What is not a source of commodities futures returns?
A. Roll yield
B. Collateral yield
C. Change in spot prices
D. Yield to maturity
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Question 12
Which of the following is not features of hedge fund fee structures?
A. Management fees and incentive fees
B. Hurdle rates and high watermarks
C. Cap rates and roll yield
Question 13
Which of the following is not a risk-return measure?
A. Sharpe ratio
B. Sortino ratio
C. Value at Risk (VaR)
Question 14
Which statement describes best the key areas for due diligence of alternative investments?
A. Fund structure, track record, and performance
B. Investment manager organization, portfolio management, operations and controls, risk
management, legal review, fund terms
C. Investment strategy, compliance, management team