AAMS Asset Management Process 4

Question 1

Which asset management concept refers to setting a long-term target mix of asset classes aligned with a client's risk/return profile?

Accepted Answer

Strategic asset allocation

Answer

Strategic asset allocation establishes the long-term target weights for each asset class based on the client's risk tolerance and goals.

Question 2

An advisor identifies that a client's marginal tax rate is 37%. How should this most likely influence the asset management process?

Accepted Answer

Favor tax-efficient investments such as municipal bonds or tax-managed funds

Answer

High tax rates make tax-efficient vehicles like municipal bonds attractive because their after-tax returns are more favorable.

Question 3

In managing a portfolio, the difference between the portfolio return and the benchmark return is called:

Accepted Answer

Active return (alpha)

Answer

Active return, or alpha, measures the excess return generated by the portfolio relative to its benchmark.

Question 4

Which of the following constraints in the IPS would most directly restrict a portfolio manager from investing in foreign equities?

Accepted Answer

Legal and regulatory constraint

Answer

Legal and regulatory constraints may prohibit certain investments such as foreign securities, especially for institutional investors.

Question 5

A client tells her manager, 'I cannot afford to lose more than 10% of my portfolio in any single year.' This statement most directly relates to:

Accepted Answer

Risk tolerance / downside constraint

Answer

The client is expressing a maximum acceptable loss, which defines a downside constraint within the risk tolerance framework.

(AAMS) Accredited Asset Management Specialist Practice Test