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VCPE Final Exam ReviewWhich degree BEST lets you advance in a PE firm?
a) MBA
b) BS Management
c) BS Finance
d) Master in Applied Finance - correct answer ✔✔MBA
An Agency Problem is when
a) A real estate agency is not providing any good alternatives
b) When management is not acting as an agent of shareholders
c) An officer also serves as an insurance agent on the side
d) A financial agency does not follow the wishes of its management
e) None of the above - correct answer ✔✔When management is not acting as an agent of shareholders
Which of the following IS CORRECT about a PE firm
a) GPs have no liability and LP's have limited liability
b) GPs organized as LLC have unlimited liabilities
c) The liability of the GPs is limited to their investment in a fund
d) LP's may lose all their money
e) The life of a PE fund is typically 3-5 years - correct answer ✔✔LP's may lose all their money
If a PE firm has a fund of $10 Billion and returns 2x their money to LPs and the carry is 20%, the total GP
carried interest retained by the managers is:
,a) $2 Billion
b) $4 Billion
c) $8 Billion
d) $10Billion
e) $20Billion - correct answer ✔✔$2 Billion
5. Assuming the numbers in the previous Question, the investment PROFITS returned to the LP's is
a) $2 Billion
b) $4 Billion
c) $8 Billion
d) $10 Billion
e) $18 Billion - correct answer ✔✔$8 Billion
Certification in a PE firm refers to:
a) Making sure a firm has CFA's (Certified Financial Advisors) on its staff
b) Having certification from your state to operate an investment business
c) Getting PE certification for the firm from an industry accreditation organization
d) The PE firm's recognition and track record in the industry
e) All the partners has a certificate from an Accredited college or University or CPA or CFA - correct
answer ✔✔The PE firm's recognition and track record in the industry
7. Which is a characteristic of both venture capital and private equity investments?
a. Partnership Agreements
b. All must be over $1-Billion.
c. A handshake will seal the deal. No need for lawyers.
d. Owning 100% of the company's value.
,e. No financial reports or scrutiny are required - correct answer ✔✔Partnership Agreements
8. Cash-on-cash return is:
a. Coupon Interest returned on bonds
b. Return calculated from the multiple of investment returned
c. The amount of cash carry that the LP receives
d. The net IRR return on an LP's investment
e. Cash dividends paid to LPs - correct answer ✔✔Return calculated from the multiple of investment
returned
9. Partnership agreement is ALL of the following EXCEPT:
a. Contract that specifies conditions to govern relationship between LP's and GP's
b. Agreement that specifies the compensation % of the general partners.
c. Agreement between LP and GP that specifies GP vacations and benefits.
d. Contract that specifies penalties in case of failure of LP to pay capital calls - correct answer
✔✔Agreement between LP and GP that specifies GP vacations and benefits.
10. A Clawback is:
a. Provision for the GP to give back to LP excess carry received, at the end of the fund
b. GP return their salaries and/or bonus to the fund if they don't perform well
c. Return of funds to LP's if the fund can't invest all the capital calls
d. Money returned by entrepreneurs to the fund if the company can't spend it - correct answer
✔✔Provision for the GP to give back to LP excess carry received, at the end of the fund
11. A Fund of funds (FOF) is:
a. A fund that invest primarily in other private equity funds
, b. A group of mutual funds investing in different stocks
c. An index fund investing in a common index like the Dow Jones
d. A mutual fund in an investment bank to accumulate investor funds - correct answer ✔✔A fund that
invest primarily in other private equity funds
12. The Advisory board of a fund is:
a. A group of LPs that gets together to advise on the investments of the fund
b. A committee of consultants that due diligence on the firm's investments
c. A committee that decides which LP's will be allowed to invest in a fund
d. A committee in an investment club that pools funds to make stock investments - correct answer ✔✔A
group of LPs that gets together to advise on the investments of the fund
13. Asset allocation is
a. Dividing up the firm's assets upon dissolution
b. The allocation of assets to the partners in a firm
c. Proportion of funds targeted for different classes of investments
d. Allocating assets to limited partners of the fund on a liquidation
e. The method which a fund manager uses to allocate their returns - correct answer ✔✔Proportion of
funds targeted for different classes of investments
14. In deciding which PE firm to select for employment, the LEAST IMPORTANT CRITERIA is:
a. Firm's certification
b. Investment track record and fund stage
c. Background of the partners
d. Location
e. Earnings potential and carry - correct answer ✔✔Location
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