CAIA LEVEL 1 EXAM STUDY GU IDE

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CAIA LEVEL 1 EXAM STUDY GU IDE |

413 QUESTIONS WITH 100% CORRECT

ANSWERS | VERIFIED | 113 PAGES

Question : Which of the following participants is LEAST

LIKELY to be classified as an outside service provider to a

fund: Arbitrageurs, accountants, auditors, or attorneys?

Correct answer: Arbitrageurs

Question : Which of the following statements best reflects an

example of moral hazard that a partners wishes to reduce through a limited partnership agreement?

• Cooperation challenges between the general and limited

partner.

• A limited partner who does not wish to be involved in the

partnership's daily operations.

• A general partner whose compensation structure is based

almost entirely on incentive fees.

• A general partner seeking investments that have negative

correlations to traditional equity.

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Correct answer: C) An example of a moral hazard is when the

general partner has a significant portion of their compensation tied to performance and incentives, such that they may be inclined to take on a lot of risk to potentially earn higher returns. A limited partner should not be involved in the day- to-day operations of the partnership. It is appropriate for a general partner to look for investments with negative correlations to traditional equity.

Question : A successful venture capital project is preparing

for its IPO. Which of the following statements regarding this process is most accurate?

• Existing owners of the venture capital project will be

forced to liquidate their entire investment before the IPO.

• Regulations prohibit retail banks, but not dealer banks,

from serving as underwriters for new securities.

• If the firm would like to be listed on non-U.S. exchanges,

an American depository receipt (ADR) would need to be created for the firm's securities.

• While the issuing firm receives the proceeds of the

securities sale, the underwriter is responsible for origination, risk bearing, and distribution of the securities.

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Correct answer: D) If a venture capital project goes public,

owners will sell part or all of their ownership in the venture.For IPOs, an underwriter is responsible for origination (design, planning, and registration of the issue), risk bearing (underwriter insures or guarantees the prices by purchasing the securities), and distribution (sale of the issue), while the issuing firm receives the proceeds of the sale. In primary markets, dealer banks and retail brokers play a crucial role in that they both may serve as underwriters, intermediaries, and liquidity providers. Global depository receipts (not ADRs) would be used if the firm chose to list its securities on a non- U.S. exchange.

Question : A liquid alternative fund that focuses on passive

positive returns that have a low correlation to U.S. equities and has limited leverage levels is most likely to be classified

as:

• A replication fund.
• A constrained clone.
• An unconstrained clone
• A diversified/absolute return fund

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Correct answer: D) A liquid alternative investment fund that

focuses on earning positive returns regardless of the investment environment and focuses on ensuring low correlation with traditional investments should be categorized as a diversified/absolute return product.

Question : An investor takes a short position of five shares of

XYZ stock at $50 per share. The terms from the lender include collateral of 102% and a rebate of 1.2%. XYZ pays a dividend of $2 per year. After one year, the price goes up to $55 and the transaction is closed. If the fees are $0.10 per share per trade, what is the total loss on the position for the investor?

A) $4,500

B) $7,500

C) $32.50

D) $12,000

Correct answer: C) The total loss calculation consists of four

components. The stock price increasing from $50 to $55, for five shares, equals a $25 capital loss. The dividend of $2 per share on five shares results in a $10 loss. The rebate of 1.2% of $250 ($50 x five shares) is $3, which is an offset to the