SM Level I Sample Questions Chartered Alternative ...

1 March 2010. SM. CAIA Level I Sample Questions Chartered Alternative Investment Analyst . These Questions are designed to be representative of the format and nature of actual CAIA Level I examination Questions in March 2010. The Sample Questions are not a facsimile of the actual Questions . The Sample Questions do not cover all of the study materials that comprise the CAIA. Level I curriculum, nor have they been verified to be equally difficult as the actual Questions . Accordingly, these Sample Questions should not be used to assess a candidate's Level of preparedness for the exam. question Breakdown **. Questions 1 through 15 Professional Standards and Ethics Questions 16 through 25 Introduction to Alpha and Beta Drivers Questions 26 through 38 Real Estate Questions 39 through 61 Hedge Funds Questions 62 through 74 Commodities and Managed Futures Questions 75 through 87 Private Equity Questions 88 through 100 Credit Derivatives **.

2 Copyright 2010 CAIA Association. All rights reserved. No part of this publication may be reproduced, electronically or mechanically, without prior written consent of the CAIA Association. March 2010. SM. CAIA Level I Sample Questions 1. Which of the following describes what an employee behind a firewall should first do if he or she needs to share confidential information about an issue with someone on the other side of the wall? A. Run a market simulation to determine if the sharing of the information will significantly alter the mix of total information currently available. B. Determine if the information about to be shared concerns a security on a watched or restricted list.

3 C. Consult a designated compliance officer to determine if sharing the information is necessary. D. Make sure that no previous trading violations have been filed against the person on the other side of the wall. 2. Why do the Code and Standards recommend that investment personnel not participate in equity initial public offerings (IPOs)? A. Because participation in equity IPOs may have the appearance of appropriating an attractive investment opportunity from clients for personal gain B. Because equity IPOs, while providing short term gains, are usually not prudent long term investments C. Because equity IPOs carry substantial systematic risk such that they usually fall outside the limits established in the investor policy statement D.

4 Because equity IPOs are often illiquid so that it is difficult for investors to sell the shares quickly at a fair price 3. According to the Code and Standards, what is the first step that a member should follow if he or she has grounds to believe that imminent or ongoing employer activities are illegal or unethical? A. Maintain a file of the activity or activities with proper documentation B. Bring the activity to the attention of their employer through their supervisor C. Move to establish a formal written policy of violations and penalties within the firm D. Maintain confidentiality in order to preserve the integrity of the firm Copyright 2010 CAIA Association. All rights reserved.

5 1. 4. According to the Code and Standards, which of the following best describes appropriate conduct related to the acceptance of gifts from clients? A. Members may accept gifts from clients if they are disclosed and if the employer finds that the gifts will not affect independence and objectivity. B. Members may accept gifts so long as their market value is less than $100. C. Members cannot accept gifts under any circumstances, in order to avoid even the appearance of a conflict. D. Members cannot accept gifts under any circumstances, because research has shown that any gift, large or small, impairs ethical judgment. 5. Which of the following is NOT a procedure of compliance with respect to the standard independence and objectivity?

6 A. Protecting the integrity of opinion B. Restricting special cost arrangements C. Creating restricted lists D. Reporting unethical trading behavior 6. According to the Code and Standards, which of the following actions is proper with regard to investing in oversubscribed issues? A. Orders for the smallest subscribers get filled first B. Orders for institutional subscribers get filled first C. Orders should be prorated to all subscribers D. Orders for subscribers not filled in the previous issue get filled first 7. Carl St. Germaine believes that reports published by his firm and used as part of presentation materials contain sections that are in violation of the Code and Standards.

7 He has brought the conduct to the attention of the firm's legal counsel, whose opinion is that the reports can be presented because they are not in violation of any law. He has brought the activity to the attention of the firm's compliance officer, whose recommendation is to trust the opinion of legal counsel. He has taken his concerns to his supervisor, who also concludes that there is nothing to be concerned about, given the counsel's advice. According to the Code and Standards, what should Carl do? A. Maintain current files for protection in the event of a formal complaint B. Dissociate from the conduct through whatever means necessary C. Stay informed about changes in the law, in case the advice from legal counsel is no longer valid D.

8 Communicate the Code and Standards to each of his supervisors with a specific reference to the violations so that his actions are on file Copyright 2010 CAIA Association. All rights reserved. 2. 8. Marco is a security analyst who places trades through a number of brokerage firms. Marco holds a professional designation requiring members to adhere to the Code and Standards. The President of one particular brokerage firm is appreciative of Marco's business and offers Marco the use of his house on Nantucket in Massachusetts for a week when he'll be out of the country. Marco accepts this offer. Which of the following statements regarding Marco's actions is consistent with the Code and Standards?

9 A. There is no violation because the President's house would not have been used had Marco not taken the offer. B. There is no violation because the Code and Standards do not preclude customary entertainment. C. Marco violated the Code and Standards by entering into a soft-dollar arrangement. D. Marco violated the Code and Standards by the acceptance of a gift that could compromise his independence and objectivity. 9. Joanna Wasic is a research analyst for a fund of hedge funds. She learns that a portion of the firm's research, prepared by another department, includes survivorship bias such that some of the firm's performance is exaggerated. Joanna presents the report to prospective clients in order to solicit new business, but steers clear of any reference to the exaggerated performance.

10 Which of the following describes Joanna's behavior with respect to the Code and Standards? A. Joanna violated the Code and Standards because the report misrepresents performance. B. Joanna violated the Code and Standards, because the report was prepared by multiple sources, and she failed to explicitly acknowledge those sources. C. Joanna did not violate the Code and Standards because she did not include the biased data in her presentation. D. Joanna did not violate the Code and Standards because she has never included such a bias in her own research. Copyright 2010 CAIA Association. All rights reserved. 3. 10. Nadia Petrav is an investment advisor and holds a professional designation that requires all members to adhere to the Code and Standards.