Free CAIA Level I Real Assets Practice Questions
Real assets on CAIA Level I cover natural resources, timber, farmland, commodities, infrastructure, intellectual property, and commercial real estate valuation methods and investment vehicles (REITs, direct ownership).
Sample Questions
Question 1
Easy
A commodity futures market is said to be in contango when:
Solution
B is correct.
Contango describes a market condition where futures prices are higher than the current spot price, creating an upward-sloping forward curve. This typically occurs when storage costs and financing costs exceed the convenience yield.
Contango describes a market condition where futures prices are higher than the current spot price, creating an upward-sloping forward curve. This typically occurs when storage costs and financing costs exceed the convenience yield.
Question 2
Medium
A CMBS structure uses tranching primarily to:
Solution
C is correct.
Tranching in a CMBS structure redistributes the credit risk of the underlying mortgage pool among different classes (tranches) of bondholders. Senior tranches have first claim on cash flows and are protected by subordination from junior tranches, which absorb losses first. This allows different investors to select risk-return profiles that match their preferences.
Tranching in a CMBS structure redistributes the credit risk of the underlying mortgage pool among different classes (tranches) of bondholders. Senior tranches have first claim on cash flows and are protected by subordination from junior tranches, which absorb losses first. This allows different investors to select risk-return profiles that match their preferences.
Question 3
Hard
Beacon Real Estate Trust is a U.S. equity REIT, and Summit Property Holdings is a real estate operating company (REOC) holding a comparable portfolio. Which comparison is correct?
Solution
D is correct. REOCs are organized as C corporations and are taxed at both the company and investor levels; because they can retain and reinvest earnings, their returns are weighted toward appreciation, whereas the REIT's returns are driven mainly by required dividend distributions.