Free Online CFA Level 1 Mock Exam 5


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Alternative Investments

4. Which of the following investments provides a current income stream in total return and has a low correlation to other asset classes?

A. antiques

B. timberland

C. commodities

5. SHM Capital is a hedge fund with USD 200 million in initial investment capital. They receive a 3% management fee and 15% incentive fee based on year-end assets under management.

In the first year, SHM Capital returned 28%. Assume that the management fee is based on the closing valuation. In the second year, the value of the fund decreased to USD 225 million. In the third year, the value of the fund increases to USD 250 million.

If the incentive fee and management fee are calculated separately, SHM earns the closest fee in year two:

A. USD2.10 million.

B. USD4.65 million.

C. USD6.75 million.

Correct Answer: C

Answer Explanation:

Management fee = $225 million * 0.03 = $6.75 million.

No incentive fee due to decline in fund value.Total fees for SHM Capital = $6.75 million.

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Corporate Issuers

6. Which of the following is considered a “pull” on liquidity?

A. Limits on short term lines of credit.

B. Obsolete inventory.

C. Increased difficulty in collecting receivables.

Correct Answer: A

Answer Explanation:

When payments are made too quickly, there is a “pull” on liquidity.

Here are some of the reasons for the liquidity crunch:

Early payments
Lowering credit limits
Short-term credit limits
Liquidity position is too low.
When collections lag, liquidity is “dragged”. Here are some of the reasons why liquidity is hampered:

Uncollected accounts receivable
Stale inventory and
Credit crunch

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