EHE Assignment 1_FIN421_2nd_45 Question 1 Private equity is. a. When a company creates financial statements that the project future changes in an income statement b. A form of compensation used to reward managers for performance. c. Shares of a company that are not traded on a public market. d. Stock that has preference over common stock Question 2 Illiquidity refers to: a. The inability of an asset or investment to be readily converted into cash. b. The conflict between managers and investors c. The challenges of allocating scarce resources across investment alternatives d. The lack of comparable metrics Question 3 The private equity market that we know today began. a. On the floor of a London insurance exchange b. With the American Research and Development Corporation c. After World War II to aid in European reconstruction efforts d. To facilitate intercontinental trade Question 4 Angel investors a. Invest their own money in entrepreneurial companies. b. Raise money from wealthy investors to form a fund. c. Underwrite initial public offerings. d. Enforce the regulations of a securities governing body. Question 5 The time horizon of a private equity or venture capital fund is typically. a. Indefinite b. Between 20 and 30 years c. Between 7 and 10 years d. Less than 3 years EHE Question 6 Management fees earned by a private equity firm. a. Have historically been in a range of 15% – 20% of a fund’s amount available to invest. b. Have historically been in a range of 2% – 3% of a fund’s amount available to invest. c. Are unknown until a private equity backed company is sold. d. Have historically been set at approximately $1 million per General Partner. Question 7 The factor that private equity firms find most attractive in companies they invest in is. a. A company’s management skills and history b. A company’s location c. A company’s growth potential d. A company’s financial history Question 8 Due Diligence is the process of a. Raising money for a private equity fund b. Hiring an independent auditor c. Investigating a company’s management, financial history, and growth prospects d. Constructing an elevator pitch Question 9 Syndication a. Is the joint purchase of shares by two or more private equity organizations. b. Is when money is released contingent upon a company’s achievement of certain milestones. c. Is the transfer of committed capital from limited partners to a private equity fund. d. Is when a serial entrepreneur creates a liquidation event. EHE Question 10 Private equity firms tend to specialize when a. They have a reputation for being good generalist investors. b. They typically make early-stage investments. c. They typically make late-stage investments. d. They have partners with a wide range of experience. Question 11 What types of funding do entrepreneurs and small firms use to finance their ventures in the Kingdom of Saudi Arabia? Give an example of your choice. ( 3 Marks) What is the primary role of a fund -of-funds, and what type of investor is likely to invest in one? ( 2 Marks) Answer. 1