calculation-reference

CFA Level I Alternative Investments Calculations

Real estate, private equity, hedge fund fee, commodity, and infrastructure calculations.

TL;DR

Alternative Investments calculations include cap rates, NOI valuation, private equity performance, carried interest, hedge fund fees, and commodity return components.

Formula Reference

Capitalization rate

Cap rate = NOI / property value

Rearrange to value = NOI / cap rate.

Hedge fund incentive fee

Incentive fee = incentive rate x gains above hurdle or high-water mark

Read the fee base carefully.

Commodity futures return

Total return = spot return + roll return + collateral return

Roll return depends on term structure.

BA II Plus Keystrokes

Use basic arithmetic for cap rate and NOI valuation.
Use STO/RCL for fee bases and hurdle calculations.
Separate spot, roll, and collateral return components before summing.

Worked Example

NOI = $500,000 and cap rate = 8 percent.
Value = 500,000 / 0.08 = $6,250,000.
A lower cap rate implies a higher value.

Common Mistakes

Using net income instead of NOI in cap-rate problems.
Applying incentive fees before management fees when the question specifies otherwise.
Reversing contango and backwardation roll-return effects.

Related Guides

CFA Level I Alternative Investments Formula Sheet - Public formula sheet for cap rates, NOI valuation, fund fees, and commodity return components.
Time-Weighted vs Money-Weighted Return - Compare TWR and MWR with formulas, examples, and CFA Level I interpretation rules.
BA II Plus: IRR Calculation Step by Step - Exact BA II Plus workflow for calculating IRR from uneven project cash flows.