AAMS Investment Strategies 3

Question 1

Which fixed-income strategy involves purchasing bonds with various maturities spread evenly across a time horizon to manage reinvestment risk?

Accepted Answer

Bond ladder

Answer

A bond ladder staggers maturities evenly, so proceeds from maturing bonds are reinvested periodically, smoothing reinvestment rate risk.

Question 2

When interest rates are expected to fall significantly, which bond strategy is most likely to produce the highest total return?

Accepted Answer

Extending portfolio duration to maximize price appreciation

Answer

Longer-duration bonds exhibit greater price sensitivity to falling rates, so extending duration amplifies capital gains when rates decline.

Question 3

A covered call strategy on an existing stock position generates premium income but:

Accepted Answer

Caps the upside potential above the strike price

Answer

Writing covered calls caps gains above the strike price because the shares may be called away, limiting upside participation.

Question 4

In the context of alternative investments, what distinguishes a hedge fund's use of 'absolute return' from traditional benchmarked strategies?

Accepted Answer

Absolute return funds seek positive returns regardless of market direction

Answer

Absolute return strategies aim for positive performance in any market environment, rather than measuring success relative to a market benchmark.

Question 5

Which portfolio construction technique minimizes variance for a given level of expected return, producing the efficient frontier?

Accepted Answer

Mean-variance optimization

Answer

Mean-variance optimization, developed by Markowitz, finds the minimum-variance portfolio for each level of expected return to map the efficient frontier.

(AAMS) Accredited Asset Management Specialist Practice Test

(AAMS) Accredited Asset Management Specialist Practice Test

AAMS Investment Strategies 3