AAMS Asset Allocation & Selection 5

Question 1

Which Monte Carlo simulation output is most useful when evaluating retirement portfolio sustainability?

Accepted Answer

Probability of not depleting assets over the plan horizon

Answer

The probability of portfolio survival (not running out of money) across thousands of simulations directly measures retirement plan success.

Question 2

Which asset class characteristic makes Treasury Inflation-Protected Securities (TIPS) valuable in an asset allocation?

Accepted Answer

Principal that adjusts with the Consumer Price Index

Answer

TIPS principal rises with inflation as measured by CPI, providing a direct hedge against purchasing power erosion.

Question 3

An advisor constructs a 'glide path' for a target-date fund. What does the glide path describe?

Accepted Answer

The gradual shift from equities to bonds as the target date approaches

Answer

A glide path defines how a target-date fund's asset allocation automatically becomes more conservative as the retirement date nears.

Question 4

Which condition describes 'asset-liability mismatch' in portfolio management?

Accepted Answer

Assets with different risk profiles than planned liabilities

Answer

Asset-liability mismatch occurs when portfolio assets and future obligations have different interest rate sensitivities, durations, or timing.

Question 5

Which investment selection metric measures excess return earned per unit of total risk?

Accepted Answer

Sharpe ratio

Answer

The Sharpe ratio divides excess return over the risk-free rate by the portfolio's standard deviation (total risk).

(AAMS) Accredited Asset Management Specialist Practice Test