AAMS Asset Allocation & Selection 4

Question 1

Which fixed income duration strategy best protects a bond portfolio against rising interest rates?

Accepted Answer

Shortening duration

Answer

Shortening duration reduces a bond portfolio's sensitivity to interest rate increases, limiting price declines when rates rise.

Question 2

An investor holds a large concentrated position in employer stock. Which strategy best reduces concentration risk while deferring taxes?

Accepted Answer

Using an exchange fund

Answer

Exchange funds allow investors to contribute concentrated stock positions and receive a diversified fund interest, deferring capital gains taxes.

Question 3

In asset allocation, which behavioral bias leads investors to maintain portfolios that resemble their employer's business sector?

Accepted Answer

Familiarity bias

Answer

Familiarity bias causes investors to overweight assets they feel familiar with, such as their employer's industry or home market.

Question 4

Which allocation approach uses multiple asset classes to achieve a consistent volatility target regardless of market conditions?

Accepted Answer

Risk parity

Answer

Risk parity allocates capital so each asset class contributes equally to total portfolio risk, often levering low-volatility assets to hit targets.

Question 5

Which of the following is a key advantage of using ETFs over individual securities for asset class exposure?

Accepted Answer

ETFs provide instant diversification at low cost

Answer

ETFs offer diversified exposure to an entire asset class or index in a single, low-cost, liquid trade.

(AAMS) Accredited Asset Management Specialist Practice Test