Free CFA Level 3 Private Markets practice questions
Answer 10 CFA Level 3 Private Markets prompts on diligence, buyout valuation, fund terms, credit and exits, with explanations and written-answer rubrics.
Follow the investment from underwriting to exit. Separate enterprise value from equity value, distinguish a fund multiple from an annualized return, test financing assumptions and connect diligence findings to sustainable cash flows.
Write the decision, then the reason
Start with the command in the question: identify, calculate, recommend or explain. For a recommendation, name the action and connect it to a supplied constraint. For a calculation, show the input, sign and unit so that a mistake can be traced. The checklist is a learning aid, not an official marking scheme.
Use the supplied case facts
Do not invent income, liquidity, tax treatment or a client objective that the case does not give. If a question uses a hypothetical tax rate, use that assumption only for the example. Keep the base currency, time horizon and asset-versus-equity distinction visible throughout your reasoning.
Separate machine scoring from self-review
Multiple-choice answers are checked against the displayed key. Written answers are not automatically graded: compare your response with the model and mark the rubric items you addressed. The completion counter records review activity, not a pass probability or a CFA exam score.
Try it here - no account needed
Your 10-question sample
Ten pathway-focused prompts: five selected-response and five written. Simplified case assumptions are stated explicitly; real transactions need additional diligence.
Progress is kept in this tab when browser storage is available. Responses are not sent to a server.
Completed
0 / 10
MCQ correct / answered
0 / 0
Written responses reviewed
0
Completion is not an exam score. Written responses are self-reviewed, not automatically graded.
- Question 1 of 10Fund performanceMultiple choice
Case facts
A private fund has $100m paid-in capital, $40m cumulative distributions and $80m residual value. Values are net to investors and measured on the same date.
Calculate total value to paid-in capital (TVPI).
Answer and explanations
($40m + $80m) / $100m = 1.2x; this is a multiple, not an annualized return.
- A: 0.4x is distributions divided by paid-in capital (DPI).
- B: 0.8x is residual value divided by paid-in capital (RVPI).
- C - correct: ($40m + $80m) / $100m = 1.2x; this is a multiple, not an annualized return.
- Question 2 of 10Due diligenceWritten response
Case facts
A target reports 25% EBITDA growth. One customer supplies 60% of revenue, its contract expires next year, and reported EBITDA excludes recurring maintenance costs.
Identify two diligence priorities and their valuation implications.
Model answer and self-review rubric
Verify customer renewal and concentration exposure because lost revenue may reduce sustainable earnings. Normalize EBITDA for genuinely recurring costs so the acquisition multiple is applied to an economic earnings base, not overstated adjustments.
Teaching checklist only. No official points or automated grade.
- Question 3 of 10Buyout valuationMultiple choice
Case facts
A company is valued at 8 times sustainable EBITDA of $20m. Net debt at closing is $60m. Ignore transaction costs and other adjustments.
Calculate equity value.
Answer and explanations
Enterprise value is 8 x $20m = $160m. Subtract $60m net debt to obtain $100m equity value.
- A - correct: Enterprise value is 8 x $20m = $160m. Subtract $60m net debt to obtain $100m equity value.
- B: $160m is enterprise value before subtracting net debt.
- C: $220m incorrectly adds net debt.
- Question 4 of 10Value creationWritten response
Case facts
A buyout plan forecasts higher EBITDA, repayment of debt and sale at a higher EBITDA multiple. No change is assumed in share count or cash outside net debt.
Separate operational, financing and market-dependent sources of equity value creation.
Model answer and self-review rubric
Higher sustainable EBITDA is operational improvement; debt repayment reduces the senior claim and increases equity value, other things equal. A higher exit multiple is market-dependent and should be stress-tested rather than treated as operating improvement.
Teaching checklist only. No official points or automated grade.
- Question 5 of 10Partnership termsMultiple choice
Case facts
A GP received carry after early profitable exits, but later losses reduce its final entitlement under the agreed fund waterfall.
Which provision can require excess carry to be returned?
Answer and explanations
A clawback can recover carry paid in excess of final entitlement, subject to its terms.
- A: A commitment is the investor obligation to provide capital.
- B - correct: A clawback can recover carry paid in excess of final entitlement, subject to its terms.
- C: A management fee compensates the manager and is not this recovery mechanism.
- Question 6 of 10Capital call planningWritten response
Case facts
An investor has $12m of uncalled commitments and $3m liquid. Managers could call $5m over the next quarter; no distributions are contractually assured.
Calculate the potential near-term gap and recommend a planning response.
Model answer and self-review rubric
The projected gap is $2m. Build a liquid reserve or reliable funding arrangement and stress-test correlated calls. Do not count uncertain distributions as if they were guaranteed funding.
Teaching checklist only. No official points or automated grade.
- Question 7 of 10Appraisal smoothingMultiple choice
Case facts
A private real-estate portfolio is appraised quarterly; its reported returns are smoother than a daily traded property index.
Which conclusion is most defensible?
Answer and explanations
Stale or smoothed appraisals can mask economic variation; examine leverage and asset exposures as well.
- A: Measurement frequency prevents that automatic comparison.
- B - correct: Stale or smoothed appraisals can mask economic variation; examine leverage and asset exposures as well.
- C: Illiquidity and appraisal timing do not eliminate losses.
- Question 8 of 10Exit analysisWritten response
Case facts
A sponsor can sell to a strategic buyer now or prepare an IPO requiring another year of operations. The current buyer offers certainty; the IPO valuation depends on future market conditions.
Explain two risks to assess before favoring the IPO.
Model answer and self-review rubric
Assess execution and market risk: the IPO window or valuation may deteriorate before listing. Assess holding-period funding and business risk, including the cost of another year and potential operating underperformance. A higher headline valuation is not sufficient.
Teaching checklist only. No official points or automated grade.
- Question 9 of 10Leverage sensitivityMultiple choice
Case facts
A company has enterprise value $200m and net debt $120m. Enterprise value falls 10% while net debt stays unchanged.
What is the percentage decline in equity value?
Answer and explanations
Equity falls from $80m to $60m: $20m / $80m = 25%.
- A: 10% is the enterprise-value decline, not the levered equity decline.
- B: 20% does not use the initial $80m equity denominator.
- C - correct: Equity falls from $80m to $60m: $20m / $80m = 25%.
- Question 10 of 10Private credit underwritingWritten response
Case facts
A borrower covers cash interest only narrowly. Its lender expects a large balloon repayment in three years from refinancing; there is no committed refinancing facility.
Identify the key maturity risk and two underwriting checks.
Model answer and self-review rubric
The borrower may not be able to refinance or repay the balloon at maturity. Stress-test cash flows and debt service under weaker earnings or higher rates, and assess collateral, covenants and realistic exit/refinancing sources. The expected refinance is not committed funding.
Teaching checklist only. No official points or automated grade.
Questions about this resource
- Are the questions and explanations free?
- Yes. Every prompt and explanation displayed on this page can be used without an account or payment card. This is a bounded sample, not a promise of an unlimited free question bank.
- Are these official CFA Institute questions?
- No. These independently authored educational examples are not past exam questions. CFA Institute does not endorse or review them.
- Does this sample predict my exam result?
- No. A short sample cannot represent the full curriculum, exam weighting or difficulty. Use the explanations to identify a reasoning gap and then practise a different example.
- What happens to my answers?
- The page attempts to keep your answers in this browser tab through a refresh. They are not submitted to a server. Closing the tab, resetting the sample, or changing the content version clears that progress. If browser storage is unavailable, answers remain only until you leave or refresh.
Apply the topic to a focused case
CFA Level 3 Private Markets pathway due diligence
Translate the investment thesis into observable operating assumptions. Revenue growth, margins, asset utilization or a strategic change can create value through different mechanisms. Ask what evidence supports execution and what would invalidate the plan. A favorable industry outlook does not establish that a particular manager or asset can deliver the projected result.
- Case facts
- An investment begins with enterprise value of 100 and net debt of 60. At exit, enterprise value is 110 and net debt is 40. Ignore fees, intermediate flows and other claims.
- Apply the method
- Entry equity = 100 - 60 = 40. Exit equity = 110 - 40 = 70. Gross equity multiple = 70 / 40.
- Interpretation
- The gross equity multiple is 1.75×. Both enterprise-value growth and debt reduction contributed; this is not an investor net return or an IRR without timing.
Independent teaching cases under the stated assumptions, rather than official questions or scoring keys.
Sources
The questions and explanations are independently written; the sources below do not endorse these samples.
- CFA Institute Level III format and topic outlines (new tab)
- CFA Institute specialized pathways (new tab)
MiloPrep is an independent study resource and is not affiliated with or endorsed by CFA Institute. CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.