CAIA Level 1 EXAM QUESTIONS AND ANSWERS 100% SOLVED (Newest 2025) liquid alternatives - Correct Answers ✅Liquid alternatives typically have (1) constraints on permissible investments strategies (for example, liquidity and leverage limits), (2) no incentive fees, (3) less skilled managers as a result of less attractive compensation and limited strategies, and (4) an inability to earn substantial illiquidity premiums.constrained clone - A liquid investment fund that seeks to replicate the strategy of an existing alternative investment but imposes some constraint (e.g., liquidity, leverage, diversification) is categorized as a constrained clone.unconstrained clone - a near-identical strategy that mimics an existing alternative investment strategy that is itself relatively liquid (and therefore doesn't need much modification) liquidity-based replication products - ensures liquidity is present by selecting liquid investments that have similar characteristics to illiquid securities used in alternative funds diversified/absolute return products - focuses on creating returns that have low correlation with traditional assets; does not attempt to mimic an alternative investment strategy fund legal documents - Correct Answers ✅The subscription agreement determines if a potential investor meets the legal 1 / 4
CAIA Level 1 EXAM QUESTIONS AND ANSWERS 100% SOLVED (Newest 2025) requirements to invest in a fund by asking the investor a set of questions. The offering documents explain the potential trading strategies and associated risks of a fund. The partnership agreement describes the legal framework of the partnership and the terms and conditions for all parties in a fund. The management company operating agreement defines the responsibilities of the limited partnership members and of the fund.market types - Correct Answers ✅primary - relate to the sale of newly issued securities (including secondary issues and securitizations) secondary - where securities trade after their initial issuance; consist of both physical exchanges and OTC markets third - a subset of the OTC market where participants make markets in and trade exchange-listed securities fourth - describe the direct exchange of securities between investors without using the services of a broker/intermediary; facilitated by electronic communication network (ECN) Federal Reserve leverage rule - Correct Answers ✅The standard Federal Reserve leverage rule requires a deposit of at least 50% of the purchase cost/short sale proceeds of a trade, or margin transaction. Alternative investment 2 / 4
CAIA Level 1 EXAM QUESTIONS AND ANSWERS 100% SOLVED (Newest 2025) managers that seek higher levels of leverage must avoid falling under this rule by registering as a broker-dealer, using a joint back office account, or relying on a broker-dealer that is located offshore.four categories of institutional-quality alternative assets - Correct Answers ✅real assets, hedge funds, private equity, structured products five structures that describe alternative assets - Correct Answers ✅regulatory, securities, trading, compensation, and institutional alternative investments risk and return characteristics - Correct Answers ✅1. diversification - seen as diversifiers
- illiquidity - liquidity risk premia
- inefficiency - not all information is incorporated into prices
- non-normal returns
- generate absolute and relative returns
- arbitrage, return enhancement, and diversification 3 / 4
primary goals of investing in alternative investments - Correct Answers ✅1. active management - create better risk and return combinations not found in passive investing
CAIA Level 1 EXAM QUESTIONS AND ANSWERS 100% SOLVED (Newest 2025) forms of market efficiency - Correct Answers ✅weak form efficiency - asset prices reflect all available historical data on prices and volumes; cannot earn superior returns using technical analysis semistrong form efficiency - asset prices reflect all publicly available information; cannot earn superior returns with either technical or fundamental analysis strong from efficiency - asset prices reflect all publicly and privately available information; no investor can earn superior returns
market efficiency affected by: asset size, trade frequency,
trading frictions, regulations, information access, valuation accuracy multifactor asset pricing model - Correct Answers ✅describes the relationship between expected returns of assets and the assets' exposures to multiple risk factors, and therefore better explain systematic risk than single factor models risk factors are derived theoretically (logic that captures behavior) or empirically (historically observed)
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