CIC - Certified Investment Counselor Risk Management and Analysis Questions and Answers Flashcards

Duration measures a bond's sensitivity to changes in:

Answer: Interest rates

Duration quantifies how much a bond's price will change for a given change in interest rates, expressed in years.

Which risk management technique involves purchasing a put option on a portfolio to limit downside losses?

Answer: Portfolio insurance

Portfolio insurance uses put options or dynamic hedging strategies to cap the maximum downside loss of a portfolio.

A client's portfolio has a Treynor Ratio of 0.12. This means the portfolio earned $0.12 of excess return for every:

Answer: Unit of systematic risk (beta)

The Treynor Ratio measures excess return per unit of systematic (beta) risk, making it suitable for comparing portfolios in a diversified context.

Reinvestment risk is MOST relevant for which type of fixed-income security?

Answer: Callable bonds paying high coupons

Callable bonds with high coupon payments expose investors to reinvestment risk because they are often called when rates fall, forcing reinvestment at lower yields.

Which of the following BEST describes liquidity risk in a client's investment portfolio?

Answer: The risk that a position cannot be sold quickly at a fair price

Liquidity risk is the danger that an investor cannot convert a position to cash promptly without accepting a significant price concession.

In the context of the CIC exam, 'tracking error' refers to:

Answer: The standard deviation of the difference between portfolio returns and benchmark returns

Tracking error is the volatility of excess returns (portfolio minus benchmark), indicating how consistently a portfolio follows its benchmark.