CAIA practice questions

1. 01

   Private capital: subscription credit

   Question 1. Unlike a net asset value facility, a subscription line of credit is secured by:

   Answer to question 1

   AA. the cash flows generated by the underlying portfolio company investments.BB. mandated reserve accounts that fully eliminate the fund's refinancing risk.CC. the general partner's future entitlement to carried interest distributions.DD. the contractual uncalled capital commitments of the limited partners.

   Check answerExplanation after you answer
2. 02

   Structured products

   Question 2. In financial structuring, which of the following mechanisms describes how cash flow structured debt products are created to redistribute the risk and return profiles of an underlying asset pool?

   Answer to question 2

   AA. Transferring underlying assets to an operating subsidiary that issues single-class equity shares to investors.BB. Transferring underlying assets to a sovereign guarantor that eliminates all portfolio credit risks.CC. Transferring underlying assets to a bankruptcy-remote entity that issues tranched debt claims to investors.DD. Retaining underlying assets on the originator balance sheet to issue unpartitioned debt claims to investors.

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3. 03

   Measuring investment returns

   Question 3. Ardmore Capital Partners manages a private equity fund for Pemberly Investment Group. The fund calls $50 million at inception (Year 0). At Year 1, with no distributions, it reports an interim IRR of 12.0%. At Year 2, the fund distributes $14 million and reports an ending net asset value of $56 million. What is the fund's investment return specifically for Year 2?

   Answer to question 3

   AA. 40.0%BB. 18.3%CC. 28.0%DD. 25.0%

   Check answerExplanation after you answer
4. 04

   Commodity indexes

   Question 4. In the construction of the Bloomberg Commodity Index, which approach is used to determine the initial commodity target weights prior to applying sector and individual concentration caps?

   Answer to question 4

   AA. Assigning equal percentage weights to constituents within predetermined tiersBB. Combining measures of futures trading volume and world production dataCC. Weighting constituents based strictly on global physical production quantitiesDD. Weighting constituents based primarily on national physical consumption values

   Check answerExplanation after you answer
5. 05

   Buyout governance

   Question 5. In corporate governance and buyout transactions, which of the following situations best describes the economic rationale for granting a golden parachute provision to incumbent target executives?

   Answer to question 5

   AA. Eliminating all agency conflicts between target managers and public shareholders during buyout negotiations.BB. Compensating incumbent debtholders for wealth expropriation resulting from target firm leverage increases.CC. Mitigating executive resistance to takeover bids by providing compensation upon post-acquisition employment termination.DD. Requiring incumbent executives to co-invest substantial personal equity alongside the private equity sponsor.

   Check answerExplanation after you answer

Questions from the MiloPrep question bank. Independently authored practice, not official exam items. This short set is for learning and does not predict an exam score.