CFE CFE Investment & Portfolio Management 2

Question 1

What is the Capital Asset Pricing Model (CAPM) primarily used to determine?

Accepted Answer

Expected return of an asset based on its systematic risk

Answer

CAPM calculates the expected return of an asset using its beta (market risk) relative to the risk-free rate and expected market return.

Question 2

A portfolio manager holds long-term bonds when interest rates are expected to rise. Which risk is most elevated?

Accepted Answer

Interest rate risk

Answer

When interest rates rise, bond prices fall; long-term bonds are especially sensitive, making interest rate risk the primary concern.

Question 3

Which regulatory framework governs the prudent management of investment assets held in trust by financial institutions in the US?

Accepted Answer

Uniform Prudent Investor Act (UPIA)

Answer

The Uniform Prudent Investor Act (UPIA) establishes the standard of care fiduciaries must follow when managing investment assets held in trust.

Question 4

What does 'beta' represent in investment analysis?

Accepted Answer

A measure of a security's volatility relative to the market

Answer

Beta measures a security's price movement relative to the overall market; a beta above 1 indicates greater volatility than the market.

Question 5

Which investment vehicle pools money from multiple investors to purchase a diversified portfolio of securities managed by professionals?

Accepted Answer

Mutual fund

Answer

A mutual fund pools investor capital to purchase a diversified portfolio, with a professional portfolio manager making investment decisions.

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