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CFA Level I · CFA Level I Exam · Alternative Investment Performance and Returns

An investor holds an unlisted infrastructure investment in a toll road whose revenues are set by a long-term concession with inflation-linked toll increases. Relative to a typical corporate equity investment, the return characteristics of this asset are most likely:

The toll road most likely offers more stable, long-term cash yields with partial inflation protection. Concession agreements with inflation-linked tolls support predictable income and an inflation hedge, and the asset is usually held long term rather than traded for short-term capital gains.

  1. AHigher sensitivity to the business cycle and lower inflation protection
  2. BMore stable, long-term cash yields with partial inflation protectionCorrect
  3. CReturns driven mainly by short-term capital gains from frequent resale

Explanation

Operating infrastructure with concession-based, inflation-linked revenues typically delivers stable, long-duration cash flows and some inflation hedge. Demand sensitivity exists but is usually lower than for cyclical equities, and returns are not driven by frequent resale.

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