Free CAIA Level II Accessing Alternative Investments Practice Questions
Accessing alternative investments on CAIA Level II covers hedge fund replication, fund of hedge funds, private vs. listed real estate, commodity access methods (futures, ETFs, direct), digital asset access, and PE performance evaluation using public market equivalents (PME).
A cash-and-call strategy for gaining commodity exposure combines which two instruments?
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Correct Answer: B
Solution
B is correct. A cash-and-call strategy places the majority of capital in a money market or fixed-income instrument to preserve principal, and uses the remaining capital or interest earned to purchase a call option on a commodity or commodity index. The result is upside participation in commodity appreciation with limited downside (at most the option premium if the cash is not principal-protected).
Question 2
Medium
A non-traded REIT differs from a publicly traded REIT primarily in which of the following ways?
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Correct Answer: A
Solution
A is correct. Non-traded REITs are registered with the Securities and Exchange Commission and qualify as REITs under the tax code (meaning they must distribute at least 90% of taxable income), but their shares are not listed on a national securities exchange such as the NYSE or Nasdaq. As a result, investors cannot readily sell shares in a secondary market, limiting liquidity and daily price discovery compared with publicly traded REITs.
Question 3
Hard
Empirical research on private equity performance has produced which of the following findings regarding PE returns relative to public markets?
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Correct Answer: A
Solution
A is correct. The academic literature (including studies by Kaplan and Schoar, Harris, Jenkinson, and Robinson, among others) finds that PE funds have on average outperformed the S&P 500 on a PME basis, but the premium has compressed in recent vintage years as large capital inflows increased competition for deals and elevated entry multiples, reducing the performance advantage relative to earlier vintage periods.
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