Asset Allocation & Selection Flashcards
7 cards from real AAMS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Asset Allocation & Selection flashcards as text
Which Monte Carlo simulation output is most useful when evaluating retirement portfolio sustainability?
Answer: Probability of not depleting assets over the plan horizon
The probability of portfolio survival (not running out of money) across thousands of simulations directly measures retirement plan success.
Which asset class characteristic makes Treasury Inflation-Protected Securities (TIPS) valuable in an asset allocation?
Answer: Principal that adjusts with the Consumer Price Index
TIPS principal rises with inflation as measured by CPI, providing a direct hedge against purchasing power erosion.
An advisor constructs a 'glide path' for a target-date fund. What does the glide path describe?
Answer: The gradual shift from equities to bonds as the target date approaches
A glide path defines how a target-date fund's asset allocation automatically becomes more conservative as the retirement date nears.
Which condition describes 'asset-liability mismatch' in portfolio management?
Answer: Assets with different risk profiles than planned liabilities
Asset-liability mismatch occurs when portfolio assets and future obligations have different interest rate sensitivities, durations, or timing.
Which investment selection metric measures excess return earned per unit of total risk?
Answer: Sharpe ratio
The Sharpe ratio divides excess return over the risk-free rate by the portfolio's standard deviation (total risk).
A client is concerned about short-term market volatility but needs long-term growth. Which strategy best balances these competing needs?
Answer: A bucketing strategy separating near-term cash needs from growth assets
Bucketing separates liquid short-term funds from long-term growth assets, allowing equity exposure without needing to liquidate during downturns.
In asset selection, which quantitative screen would best identify stocks with strong earnings quality?
Answer: High cash flow relative to reported earnings
A high ratio of operating cash flow to reported earnings signals that earnings are backed by real cash, indicating strong earnings quality.