CFSP Portfolio Management & Asset Allocation 5

Question 1

Under the semi-strong form of the efficient market hypothesis, which approach is expected to consistently generate excess returns?

Accepted Answer

Trading on material non-public information

Answer

Semi-strong efficiency says public information is already priced, so only non-public information could help (and is illegal if material).

Question 2

In a regression of a portfolio against the market, a high R-squared indicates:

Accepted Answer

Most of the portfolio's return variation is explained by market movements

Answer

R-squared is the share of return variance explained by the benchmark or market.

Question 3

A threshold (corridor) rebalancing policy triggers a trade when:

Accepted Answer

An asset class weight drifts beyond a preset band around its target

Answer

Corridor rebalancing acts only when allocations breach tolerance bands.

Question 4

The Sortino ratio improves on the Sharpe ratio by using which denominator?

Accepted Answer

Downside deviation

Answer

Sortino penalizes only harmful (below-target) volatility.

Question 5

A portfolio holds 60% in an asset with an expected return of 8% and 40% in an asset with an expected return of 4%. What is its expected return?

Accepted Answer

6.4%

Answer

0.60 × 8% + 0.40 × 4% = 4.8% + 1.6% = 6.4%.

CFSP - Certified Financial Services Professional Practice Test