AAMS Asset Allocation & Selection 2

Question 1

Which asset allocation approach adjusts portfolio weights back to target percentages after market movements?

Accepted Answer

Rebalancing

Answer

Rebalancing restores a portfolio to its target asset allocation after drift caused by differing asset class returns.

Question 2

A client has a 10-year investment horizon and moderate risk tolerance. Which allocation would typically be MOST appropriate?

Accepted Answer

60% equities / 40% bonds

Answer

A 60/40 equity-to-bond split is a classic moderate-risk allocation suitable for intermediate-to-long horizons.

Question 3

Which risk measure captures only downside deviations from a target return?

Accepted Answer

Semi-variance

Answer

Semi-variance measures volatility only for returns that fall below a specified target, focusing on downside risk.

Question 4

In the context of asset selection, which factor style focuses on stocks trading below their intrinsic value?

Accepted Answer

Value

Answer

Value investing targets stocks with low price-to-earnings or price-to-book ratios relative to fundamentals.

Question 5

What is the primary purpose of using a liability-relative allocation strategy?

Accepted Answer

To match assets with specific future liabilities

Answer

Liability-relative (or liability-driven) investing structures assets so they can fund specific future obligations, reducing funding risk.

(AAMS) Accredited Asset Management Specialist Practice Test