CAIA - REAL ASSETS WITH 100% CORRECT ANSWERS 2023

What are the categories of Real assets ? Land, Infrastructure, and IntangibleReal Assets Real Estate Fixed-Income Investments Real Estate Equity Investments • Binomial option pricing model ? • Binomial option pricing model: can be used to value undeveloped land as a call option. The components of the call option are: strike price, time to expiration, underlying asset, option payoff, exercising the option, and option moneyness. • Investable infrastructure has seven key characteristics ? • Investable infrastructure has seven key characteristics: Public use of the asset or service. Monopolistic power to set prices. Government related. Provides an essential service. Generates cash. Conducive to privatization. Capital intensive long-term projects. • A discounted cash flow approach ? • A discounted cash flow approach is the best way to value an intellectual property (IP) investment. • Return management methods for real assets ? • Return management methods for real assets: 1. Market manipulation via trading activity. 2. Valuation model manipulation. 3. Selective appraisals. 4. Favorable marking. Sequential-pay collateralized mortgage obligation ? Sequential-pay collateralized mortgage obligation: pays a predetermined share of the interest payments to each tranche. Principal payment receipts are based on tranche seniority. Lower seniority tranches do not receive principal payments until senior tranches are repaid. • Stages of the real estate development process ? • Stages of the real estate development process: 1. Acquiring the land or the site. 2. Forecasting the project cash flows. 3. Designing the building/site. 4. Securing permits and public approval of the project. 5. Securing financing. 6. Building the structure. 7. Leasing and/or managing the property and possibly selling the property. • Real estate development stages (Each step can be viewed as a real call option.) ? • Real estate development stages (Each step can be viewed as a real call option.) 1. Feasibility study to assess potential profitability. 2. Purchase property. 3. Construction. • Decision tree ? • Decision tree: Analysis tool for valuing real estate as a string of call options. Involves working backwards from the final decision nodes toward the first decision nodes based on a valuation analysis at each node • Comparable sales approach ? • Comparable sales approach: uses recent transaction values of similar properties, adjusted for subject property differences. • Critical risk factors in real estate investment ? • Critical risk factors in real estate investment: financial risk, business risk, operational ris