CFA Private Equity Sample Questions & Practice Test

CFA Institute Private Equity Certificate is a focused route for candidates who need practice with private equity strategy, due diligence, fund economics, valuation, exits, and investor suitability.

These original sample questions preview the reasoning style a Finance Prep route should use. They are not official CFA Institute exam questions.

What this route should test

• recognizing buyout, growth, venture, and secondaries strategies
• interpreting fund economics, capital calls, carried interest, and distributions
• applying valuation and exit logic to private-company scenarios
• evaluating due diligence, risk, and investor fit

Sample Exam Questions

Question 1

Topic: buyouts

A private equity sponsor acquires a mature company and plans operational improvements and leverage reduction before exit. Which strategy is most likely?

• A. Money market fund
• B. Leveraged buyout
• C. Passive index replication
• D. Short-term Treasury ladder

Best answer: B

Explanation: Buyouts involve control or significant influence over mature businesses, often with leverage and value-creation plans.

Question 2

Topic: venture capital

Compared with buyout investing, venture capital typically has:

• A. guaranteed current income
• B. lower uncertainty in every case
• C. daily redemption rights
• D. higher company-failure risk and more emphasis on growth potential

Best answer: D

Explanation: Venture investments target early-stage or high-growth companies. Outcomes can be highly dispersed, with failure risk and upside potential.

Question 3

Topic: value creation

Which item is an operational value-creation lever?

• A. Improving margins through pricing, procurement, or process changes
• B. Changing the font in investor reports
• C. Ignoring customer concentration
• D. Eliminating all governance review

Best answer: A

Explanation: Private equity value creation can include revenue growth, margin expansion, working-capital improvement, strategy, governance, and exit preparation.

Question 4

Topic: fund economics

What is carried interest designed to do?

• A. Guarantee investors never lose money
• B. Replace all management fees
• C. Reward the manager based on investment performance after defined terms
• D. Provide daily liquidity

Best answer: C

Explanation: Carried interest is a performance incentive. Terms such as hurdle rates, catch-ups, and clawbacks affect alignment.

Question 5

Topic: capital calls

An investor commits $10 million to a private equity fund but only $2 million is called at closing. What should the investor plan for?

• A. Immediate full redemption
• B. Future capital calls over the investment period
• C. No further funding need
• D. Guaranteed monthly distributions

Best answer: B

Explanation: A commitment is not always funded at once. Investors must reserve liquidity for future calls.

Question 6

Topic: valuation

Why might EBITDA multiples be used in private company valuation?

• A. To guarantee the sale price
• B. To avoid cash-flow analysis entirely
• C. To remove judgment from valuation
• D. To compare operating earnings with similar transactions or companies

Best answer: D

Explanation: Market multiples provide a benchmark, but private-company valuation still requires adjustments for growth, margins, leverage, size, and risk.

Question 7

Topic: due diligence

Which due-diligence item most directly affects revenue quality?

• A. Customer concentration and contract durability
• B. The office wall color
• C. The number of fonts in the pitch deck
• D. Whether the company has a short name

Best answer: A

Explanation: Revenue concentration and contract quality affect the durability of future cash flows and the risk of valuation assumptions.

Question 8

Topic: exit routes

Which is a common private equity exit route?

• A. Automatic redemption at net asset value every day
• B. Permanent prohibition on sale
• C. Sale to a strategic buyer, sponsor-to-sponsor sale, or public listing
• D. Transfer to a checking account

Best answer: C

Explanation: Exit planning often considers strategic sales, secondary buyouts, IPOs, recapitalizations, or continuation vehicles.

Question 9

Topic: risk

Why can leverage increase private equity risk?

• A. Leverage eliminates interest expense
• B. Debt obligations can magnify downside if cash flows underperform
• C. Debt always reduces risk
• D. Leverage guarantees higher valuation

Best answer: B

Explanation: Leverage can enhance returns when performance is strong but increases financial risk when cash flows weaken.

Question 10

Topic: secondaries

What does a secondary private equity transaction usually involve?

• A. Issuing a new checking account
• B. Trading daily listed shares only
• C. Eliminating due diligence
• D. Buying or selling existing fund interests or portfolio exposure

Best answer: D

Explanation: Secondary transactions provide liquidity or exposure through existing interests, often requiring pricing and portfolio due diligence.

Question 11

Topic: governance

Why might board control matter after a buyout?

• A. It can help execute strategy, monitor management, and enforce accountability
• B. It eliminates all business risk
• C. It removes the need for reporting
• D. It guarantees an IPO

Best answer: A

Explanation: Governance is part of value creation and risk control. Board influence can support execution but cannot guarantee outcomes.

Question 12

Topic: investor fit

Which investor is least suited for a private equity allocation?

• A. One with long-term capital and illiquidity tolerance
• B. One able to evaluate manager risk
• C. One needing high liquidity and predictable short-term cash access
• D. One with governance capacity for alternatives

Best answer: C

Explanation: Private equity is generally illiquid and long term. Investors with near-term cash needs may be poorly matched.