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

Cartes-fiches

Chapter 17 - What are the advantages of multi -strategy funds compared to FOFs?

- lower incentive fees (they avoid second layer of fees) - fees in multi -strategy funds are based on aggregated returns - greater felxibility - greater transparency - real -time access to all positions

Chapter 17 - What are the advantages of FOFs compared to mult -strategy funds?

- acces to more fund manager - diversification of operational risk -

Chapter 17 - What are the 3 reasons FOFs are less biased than individual hedge funds?

- FOFs retain the returns of liquidated funds in their track record - FOFs include investment returns from the date of the first investment - FOFs use actual weights

Chapter 17 - What are the 5 subindices of FOFs?

- compsite - conservative - diversified - market defensive - strategic

Chapter 17 - What are the main objectives of the 5 subindices of FOFs?

- composite: higher returns - diversified: higher returns - conservative: consistent return with low risk - market defensive: hedge market risk - strategic: higher returns

Chapter 18 - What are the similarities and differencies between Futures and Forwards?

- both can be either deliverable or cash settlement contracts - both have zero value at the time an investors enters into a contract - futures are exchange traded - futures contracts have standardized contract sizes and termes - futures have no counterparty risk - futures are marked -to -market - futures are regulated by the government

Chapter 18 - The relationship between forward prices and time is called..

term structure of forward prices

Chapter 18 - What are the assumptions for the simple forward pricing model?

- transaction costs, taxes do not exist - Risk free rate is zero - underlying asset can be borrowed at no cost - underlying asset has no dividend yield, convenience yield, storage cost - underlying asset can be easily obtained

Chapter 18 - forward prices in a contango market are above or below the spot price?

above

Chapter 18 - forward prices in a backwardation market are above or below the spot price?

below

Chapter 18 - A measure of the financial difference between holding a position in the spot market and holding a position in the forward market refers to?

cost of carry

Chapter 18 - What are the costs and benefits of real assets?

costs: interest + storage benefits: convenience

Chapter 18 - What are the costs and benefits of financial assets?

costs: interest + custody benefits: dividends + coupons

Chapter 18 - What are the steps of a cash and carry arbitrage strategy?

- sell a forward contract - borrow cash at the risk free rate - buy the underlying asset - settle the forward contract - repay the loan and interest

Chapter 18 - What are the steps of a reverse cash and carry arbitrage strategy?

- buy a forward contract - sell the underlying asset - lend cash from the short sale - collect the loan proceeds - take delivery of the asset

Chapter 18 - Why are forward prices reduced when dividends or coupons are greater than the risk free rate?

- dividends and coupons casuse the value of the financial assets to decrease on the day of the distribution. Forward contracts with maturities after the distribution date must reflect the decline in value - Financial asset values comprise (1) the present value of dividends or coupons until time T and (2) the present value of the market price at time T. Forward contracts only account for (2) and therefore must be lower than the spot price to reflect the cash distribution

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

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