CFC Investment Planning

Question 1

Which investment metric measures the percentage of a portfolio's return attributable to the manager's active decisions rather than market movements?

Accepted Answer

Alpha

Answer

Alpha measures the excess return generated by a portfolio manager above the benchmark, reflecting active management skill.

Question 2

A CFC recommends a bond with a duration of 8 years when interest rates are expected to rise 1%. Approximately how much will the bond's price change?

Accepted Answer

-8%

Answer

Duration predicts that for each 1% rise in interest rates, the bond price will fall approximately by the duration percentage.

Question 3

Which asset allocation strategy automatically rebalances by selling outperforming assets and buying underperforming ones?

Accepted Answer

Constant-mix strategy

Answer

The constant-mix strategy maintains fixed target weights by selling winners and buying losers as markets move.

Question 4

Under Modern Portfolio Theory, the efficient frontier represents portfolios that offer:

Accepted Answer

Minimum risk for a given expected return or maximum return for a given risk

Answer

The efficient frontier plots portfolios that are optimal — delivering the highest return for each level of risk or the lowest risk for each return target.

Question 5

A client's portfolio has a Sharpe ratio of 1.2. This indicates:

Accepted Answer

The portfolio earned 1.2 units of excess return per unit of total risk

Answer

The Sharpe ratio measures risk-adjusted return as excess return over the risk-free rate divided by standard deviation.

CFC - Certified Financial Consultant Practice Test

CFC - Certified Financial Consultant Practice Test

CFC Investment Planning