Caia Level 1

Caia Level 1 Questions

Caia Level 1 Questions


D. Z.
This flashcard set covers advanced finance topics at an expert level, focusing on risk management, investment strategies, and portfolio optimization. It delves into concepts like risk parity, alpha and beta management, and various investment structures, including hedge funds and collateralized debt obligations (CDOs). The flashcards explore methods for performance testing, due diligence processes, and the intricacies of credit derivatives. Ideal for finance professionals and investors, this set provides a comprehensive understanding of sophisticated financial instruments and strategies to enhance investment decision-making and portfolio performance.
Cartes-fiches
253
Utilisateurs
7
Langue
Anglais
Catégorie
Finances
Niveau
Autres
Créé / Mis à jour
10.02.2016 / 13.06.2022

Flashcards

Chapter 18 - What are the 2 key point regarding term structure of forward prices?

(1) slope and shape of the term structure are driven by differences in the cost of carry (2) slope and shape of term structure are not related to returns earned on forward contracts

Chapter 18 - price patterns where the forward price is below the expected future spot price and converges to that price from below over time refers to?

Normal backwardation

Chapter 18 - price patterns where the forward price is above the expected future spot price and converges to that price from above over time refers to?

Normal contango

Chapter 18 - What is the goal of an investor who use futures as a beta driver / alpha driver

beta: gain risk and return exposures of the underlying asset while minimizing costs alpha: look for violations of the law of one price and engage in the appropriate arbitrage transactions

Chapter 21 - What are the 2 objectives of a business plan?

- internal plan to guide the company's directions - to convice venture capitalists to invest in the company

Chapter 21 - What are the 9 major parts of a business plan?

- Market - Product - Intelectual Property rights - Operations - Prior operating history - Management Team - Financial forecasts - Financing schedule - Exit plan

Chapter 21 - What are the 3 main categories of protective covenants in venture capital limited partnerships?

- Covenants regarding fund management - Covenants regaring general partner activities - Covenants regarding allowable investments

Chapter 21 - In venture capital funds management fee is assessed on commited capital or on the actual invested capital?

commited capital

Chapter 21 - What are the 3 covenants to combat volatility issues?

- clawback provision - escrow agreements - prohibition on the distribution of profit -share fees

Chapter 21 - What are the 5 stages associated with the life cycle of a venture capital fund?

(1) Fundraising (2) Sourcing investments (3) Investment commitment (4) Investment management (5) Fund liquidation

Chapter 21 - What are the 5 stages of financing for a startup company?

- Angel investors - Seed capital - First/early stage capital - Second or late/expansion stage - Mezzanine stage

Chapter 21 - What are 3 risk premiums of venture capital investments?

- Business risk - Liquidity risk - Concentration risk

Chapter 21 - What are 3 differences of LBOs to traditional investments?

- require activist investors that become controlling shareholders - rely on a substantial amount of leverage - are not publicly traded

Chapter 21 - What are 6 types of fees earned by LBO firms?

- Management fees - Profit -sharing fees (incentive) - Privatization fees - Break -up fees - Director fees - Divestiture fees

Chapter 21 - What are the 5 categories of LBOs?

- Efficiency buyouts - Entrepreneuship - Conglomerates - Buy and build strategy - Turnaround strategy

Chapter 21 - What are advantages of LBOs?

- tax benefits - regulatory requirements and investor communications are reduced - ability to focus on product goals - managers receive direct financial benefits

Chapter 21 - What are the 3 primary sources through LBO funds are financed?

- Senior debt - Mezzanine debt - Equity

Chapter 21 - What are the 6 exit strategies of LBOs?

- Sale to a strategic buyer - Sale to a financial buyer - Sale via IPO - New LBO - Refinancing - Hybrid strategy

Chapter 21 - What are the 4 benefits for the public market that result from the application of corporate governance principles by LBO firms?

- CG principles remain in place after the company becomes public again - threat for management of being removed if no CG are incorporated - provide a roadmap for other manager - helps prevent the formation of inefficient conglomerates

Chapter 21 - What are the advantages and disadvantages of club deals?

+ larger capital pool + investment restrictions + pooled resources - lack of market participants - lack of defined leadership for the business plan

Chapter 21 - Why are LBOs less risky than venture capital deals?

- LBO targets have track record with proven products/services - LBO are able to diversify while venture capital firms are specialized - IPO exit strategy is much more realistic

Chapter 22 - Firm using mezzanine debt are able to lower their WACC. True or False?

True

Chapter 22 - Mezzanine debt covenants generally allow a maximum loan -to -EBITDA multiple of?

4-4,5

Chapter 22 - What are the 7 different types of transactions mezzanine financing is typically used?

- Management buyout - Leveraged buyout - Growth and/or expansion - Acquisitions - Company recapitalization - Commercial real estate financing - Bridge financing

Chapter 22 - What are the 4 primary lenders/investors of mezzanine debt?

- Mezzanine funds - Insurance companies - Traditional senior lenders (banks) - Traditional venture capital firms

Chapter 22 - What are unique characteristics of mezzanine debt?

- Board respresentation - Restrictions on the borrower - Flexibility - Negotiations with senior creditors - Subordination - Acceleration of senior debt - Assign interest to third parties - Takeout provision

Chapter 22 - What are the 5 factors that have led to an increase in distressed debt?

- new types of commercial loans - active portfolio management - increased debt levels - increased M&A and LBO activity - growth of covenant -light loans

Chapter 22 - What are the 3 categories distressed debt investing can be classified into?

- active investors seeking control - active investors not seeking control - passive investors

Chapter 22 - What are the steps in a chapter 11 bankruptcy process?

- file for protection under chapter 11 - court freezes all default notices ( - accelerated process with pre -packaged bankruptcy filling) - create and file a plan of reorganization - convince creditors to accept plan - if accepted seek approval by court - if not accepted submit new plan

Chapter 22 - What are the 2 reasons why a lender will grand DIP (debtor -in -possession financing) financing?

- allows borrower to continue opperations - DIP loans have first priority

Chapter 23 - What are the 3 forms of credit risk?

- defult risk - downgrade risk - credit spread risk

Chapter 24 - Derivative instruments that are designed to transfer the risk of a single entity or reference are called?

single -name instruments

Chapter 24 - What is the most common single -name instrument?

CDS credit default swap

Chapter 24 - What is the difference between funded and unfunded credit instruments?

Funded credit instruments involve the transfer of notional principal

Chapter 24 - Whar are the 4 characteristic stages of the evolution of the credit derivatives market

- Defensive stage (late 1980s - early 1990s) - Emergence of intermediaries (1991 - late 1990s) - Development of Redulations (late 1990s - 2002) - Liquid Market (2003 - present)

Chapter 24 - A bilateral OTC contract between a protection buyer (short credit risk) and a protection seller (long credit risk) is called?

Credit Default Swap CDS

Chapter 24 - What are the 2 types of swaps that trade credit risk are..

- CDS (credit default swap) - TRS (total return swaps)

Chapter 24 - What are the 5 key types of terms negotiated between CDS buyer and seller?

-CDS spread - Contract size and maturity - Payment trigger events - Method of settlement - Choice of assets to deliver

Chapter 24 - What are the 4 key parameters that define a CDS?

- Credit reference - Notional amount - CDS spread - CDS maturity

Chapter 24 - What are the 3 ways to unwind an existing CDS position?

- contract termination - offsetting postion - novation

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