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LOS f: Explain the risks and costs of investing in private equity.
Q1. Which of the following terms correctly describes the risk to a private equity firm in long-term interest and exchange rates, and the provision that specifies the method of profit distribution between the limited partners (LPs) and general partner (GP), respectively?
Risk in long-term rates Profit distribution
A) Market risk Distribution waterfall
B) Capital risk Carried interest
C) Market risk Carried interest
Q2. An analyst makes the following statements on the risk and costs of private equity investments:
Statement 1: Committed capital is the initial capital in a private equity fund to obtain first round financing. As committed
capital is used up, investors are required to make additional commitments to finance firm projects and expansion.
Statement 2: The J-Curve refers to the risk pattern in a private equity investment over time. Risk in private equity investments initially typically declines as more capital is drawn down but increases closer to exit since exit timing and values are difficult to predict.
With respect to the analyst’s statements:
A) both are correct.
B) only one is correct.
C) both are incorrect.
Q3. An implicit cost in private equity of additional financing or issuing stock options to management is called:
A) management and performance cost.
B) capital cost.
C) dilution cost. | 
发表于 2009-3-10 11:18
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