Free CFA Level II Alternative Investments Practice Questions (2026)

Sample Questions

Question 1 Easy

A global macro hedge fund strategy typically involves:

Solution

A is correct.

Global macro strategies focus on top-down macroeconomic analysis and take directional positions based on broad economic themes. These funds trade across asset classes -- currencies, government bonds, equity indices, and commodities -- based on views about monetary policy, economic growth, political events, and other macro factors. Examples include George Soros's Quantum Fund.

Question 2 Medium

In real estate valuation, the going-in cap rate is:

Solution

C is correct.

The going-in cap rate (also called the initial cap rate or entry cap rate) is used to capitalize the first year's NOI to estimate the current property value. It reflects the market's current required rate of return on the property based on comparable transactions.

Value = Year 1 NOI / Going-in Cap Rate.

Question 3 Hard

Based on the vignette, Summit's AFFO per share is closest to:

Solution

A is correct.

AFFO = FFO - Recurring Capital Expenditures - Non-cash Rent Adjustments (straight-line rent)

\text{FFO} = 75{,}000{,}000

(calculated previously)

\text{AFFO} = 75{,}000{,}000 - 12{,}000{,}000 - 3{,}000{,}000 = 60{,}000{,}000

AFFO per share:

\frac{60{,}000{,}000}{20{,}000{,}000} = 3.00

AFFO provides a more refined measure of recurring cash flow by deducting maintenance capex and adjusting for non-cash items like straight-line rent.

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