Asset Management Investment Portfolio Asset Allocation 2

Question 1

Which asset class historically provides inflation protection and has low correlation with stocks and bonds?

Accepted Answer

Real Assets (commodities, real estate, infrastructure)

Answer

Real assets tend to retain value during inflationary periods because their prices often rise with general price levels.

Question 2

What does the Sharpe Ratio measure in portfolio performance evaluation?

Accepted Answer

Risk-adjusted return per unit of total risk (standard deviation)

Answer

The Sharpe Ratio divides excess return over the risk-free rate by portfolio standard deviation, measuring return earned per unit of risk.

Question 3

Dollar-Cost Averaging (DCA) as an asset allocation technique involves:

Accepted Answer

Investing fixed dollar amounts at regular intervals regardless of price

Answer

DCA reduces the impact of market volatility by purchasing more shares when prices are low and fewer when prices are high.

Question 4

Which US retirement account type allows tax-free growth and tax-free qualified withdrawals in retirement?

Accepted Answer

Roth IRA

Answer

Roth IRA contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free.

Question 5

In portfolio management, 'rebalancing drift' occurs when:

Accepted Answer

Market performance causes actual allocation to diverge from target weights

Answer

Rebalancing drift refers to the natural deviation of portfolio weights from targets as different assets generate different returns over time.

Asset Management Practice Test