Free CAIA Level I Private Equity Practice Questions
Private equity on CAIA Level I covers venture capital stage financing, growth equity, leveraged buyouts (LBOs), PE fund structures, exit strategies (IPOs, M&A, SPACs), and long-term PE performance benchmarking.
Sample Questions
Question 1
Easy
What is a "vintage year" in private equity?
Solution
A is correct.
The vintage year refers to the year in which a private equity fund holds its final close or begins deploying capital, and is used to group funds for performance benchmarking purposes.
The vintage year refers to the year in which a private equity fund holds its final close or begins deploying capital, and is used to group funds for performance benchmarking purposes.
Question 2
Medium
The power law of returns in venture capital implies that:
Solution
B is correct.
The power law of returns is a fundamental characteristic of VC investing: a small fraction of portfolio companies (often fewer than 10%) generate the vast majority of fund returns, while many investments result in partial or total losses. This extreme skewness means that missing even one top performer can dramatically reduce fund returns.
The power law of returns is a fundamental characteristic of VC investing: a small fraction of portfolio companies (often fewer than 10%) generate the vast majority of fund returns, while many investments result in partial or total losses. This extreme skewness means that missing even one top performer can dramatically reduce fund returns.
Question 3
Hard
A startup has a pre-money valuation of $8 million. A venture capital firm invests $2 million in the Series A round. What is the VC firm's ownership percentage immediately after the investment?
Solution
A is correct.
The post-money valuation equals the pre-money valuation plus the new investment: $8 million + $2 million = $10 million. The VC firm's ownership percentage is calculated as the investment amount divided by the post-money valuation: $2 million / $10 million = 20%.
The post-money valuation equals the pre-money valuation plus the new investment: $8 million + $2 million = $10 million. The VC firm's ownership percentage is calculated as the investment amount divided by the post-money valuation: $2 million / $10 million = 20%.