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Real estate has the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index as its principal benchmark. Which of the following is most accurate?

A)
The volatility of the index has a downward bias.
B)The volatility of the index has an upward bias.
C)The average return of the index has a downward bias.
D)The average return of the index has an upward bias.


Answer and Explanation

Since the prices are obtained periodically, the volatility of the index has a downward bias.

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Reading 34: Alternative Investm....olio Management-LOS e

CFA Institute Area 8-11, 13: Asset Valuation
Session 11: Alternative Investments for Portfolio Management
Reading 34: Alternative Investments Portfolio Management
LOS e: Discuss the construction and interpretation of benchmarks and the problem of benchmark bias in alternative investment groups.

One problem in creating a private equity index is the:

A)
infrequent repricing of the components.
B)problems with defining what constitutes a private equity investment.
C)issue of leverage and how to deal with it.
D)excessive volatility of the components.


Answer and Explanation

The value of a private equity index depends upon price-revealing events like IPOs, mergers, the raising of new financing, etc... Thus, the re-pricing of the index occurs infrequently.

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With respect to commodities and managed futures, which have investable indices?

A)Neither commodities nor managed futures.
B)Commodities but not managed futures.
C)Managed futures but not commodities.
D)
Both commodities and managed futures.


Answer and Explanation

Indices for both asset classes use trading rules and assets to which investors have access.

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