Free CAIA Level I Introduction to Alternative Investments Practice Questions (2026)

Free CAIA Level I Introduction to Alternative Investments Practice Questions

Foundations of alternative investments on CAIA Level I cover fund structures (LP/GP), fee calculations (management fee, carried interest), distribution waterfall mechanics, IRR and TVPI return metrics, and return distribution statistics.

481 questions 141 easy 249 medium 91 hard 2026 syllabus

Sample Questions

Question 1 Easy

The law of one price states that:

Solution

B is correct.

The law of one price states that two assets (or portfolios) that produce identical cash flows in every state of the world must have the same price. Any price discrepancy would create a riskless arbitrage opportunity.

Question 2 Medium

Gamma is highest for options that are:

Solution

B is correct.

Gamma measures the rate of change of delta with respect to the underlying price. Gamma is maximized for at-the-money options near expiration because small price movements cause the largest shifts in the probability of finishing in or out of the money, producing rapid changes in delta.

Question 3 Hard

An investor deposits $25,000 at a nominal annual rate of 12% compounded quarterly. The effective annual rate (EAR) and the account value after 2 years are closest to:

Solution

D is correct.

With quarterly compounding, the periodic rate is

\frac{12%}{4} = 3%

. The EAR

= (1 + 0.03)^{4} - 1 = (1.03)^{4} - 1

. Computing:

(1.03)^{2} = 1.0609

;

(1.0609)^{2} = 1.12551

. So EAR = 12.55%. The account value after 2 years (8 quarters):

25, 000 \times (1.03)^{8} = 25, 000 \times 1.26677 = $31, 669 \approx $31, 670.

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