AAMS Asset Management Process 2

Question 1

Which step in the asset management process involves identifying a client's tolerance for loss and time horizon?

Accepted Answer

Risk assessment

Answer

Risk assessment identifies a client's risk tolerance, time horizon, and capacity for loss before building a portfolio.

Question 2

A portfolio manager reviews quarterly returns against a benchmark index. This activity is best described as:

Accepted Answer

Performance evaluation

Answer

Performance evaluation measures portfolio returns against a predetermined benchmark to assess investment effectiveness.

Question 3

When a client's equity holdings grow from 60% to 68% due to market gains, the manager sells equities to return to 60%. This is called:

Accepted Answer

Rebalancing

Answer

Rebalancing restores a portfolio to its target asset allocation after market movements cause drift.

Question 4

Which of the following best describes the purpose of an Investment Policy Statement (IPS)?

Accepted Answer

To document investment guidelines, objectives, and constraints

Answer

An IPS formalizes a client's investment objectives, risk tolerance, constraints, and guidelines to govern portfolio management.

Question 5

In the asset management process, which constraint addresses a client's need to convert investments to cash quickly without significant loss?

Accepted Answer

Liquidity constraint

Answer

The liquidity constraint reflects a client's need to access funds readily, influencing how much is held in liquid assets.

(AAMS) Accredited Asset Management Specialist Practice Test