CFM Investment Analysis & Portfolio Management 3

Question 1

A fund manager wants to hedge a $10 million equity portfolio with a beta of 1.2 using S&P 500 futures contracts valued at $250,000 each. How many contracts should be sold?

Accepted Answer

48

Answer

Contracts needed = (Portfolio Value × Beta) / Futures Value = ($10M × 1.2) / $250,000 = 48 contracts.

Question 2

Which risk measure captures the average loss in the worst 5% of scenarios?

Accepted Answer

Conditional Value at Risk (CVaR)

Answer

CVaR (also called Expected Shortfall) measures the average loss beyond the VaR threshold in the tail of the distribution.

Question 3

An analyst uses the Gordon Growth Model to value a stock. If dividends are $3, the required return is 10%, and growth is 4%, what is the intrinsic value?

Accepted Answer

$50

Answer

Gordon Growth Model: P = D1 / (r − g) = $3 / (0.10 − 0.04) = $3 / 0.06 = $50.

Question 4

What is the primary purpose of rebalancing a portfolio?

Accepted Answer

Restoring target asset allocation after market movements

Answer

Rebalancing realigns the portfolio to its target allocation after price changes cause drift from the intended risk profile.

Question 5

Which of the following is a characteristic of a passively managed index fund?

Accepted Answer

Low tracking error relative to the benchmark

Answer

Passive index funds aim to replicate benchmark performance, resulting in low tracking error and minimal deviations from the index.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM Investment Analysis & Portfolio Management 3