CFA Level I · CFA Level I Exam · Alternative Investment Performance and Returns
An investor is comparing a direct investment in farmland with a portfolio of listed equities. Which characteristic of the farmland is most likely?
Farmland returns most likely depend on both crop or lease income and changes in land value. Unlike listed equities, direct farmland is illiquid, appraised rather than priced daily, and costly to transact, so options citing daily transparency or lower costs are incorrect.
- AReturns depend on both crop income and land value changesCorrect
- BValuation is transparent and updated every trading day
- CTransaction costs are lower than for listed equities
Explanation
Farmland returns come from income from crops or leasing plus changes in land value. Direct holdings are illiquid, valued by appraisal, and have higher transaction costs than listed equities.
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