CIC CIC - Certified Investment Counselor Risk Management and Analysis Questions and Answers 1

Question 1

Which measure expresses the risk-adjusted return of a portfolio relative to the total risk taken?

Accepted Answer

Sharpe Ratio

Answer

The Sharpe Ratio divides excess return over the risk-free rate by total portfolio standard deviation, measuring reward per unit of total risk.

Question 2

A portfolio's beta of 1.4 indicates that for every 1% move in the market, the portfolio is expected to move:

Accepted Answer

1.4%

Answer

Beta measures systematic risk; a beta of 1.4 means the portfolio is expected to move 1.4% for each 1% market move.

Question 3

Value at Risk (VaR) at the 95% confidence level over one day means that losses will exceed the VaR estimate on approximately:

Accepted Answer

1 out of 20 days

Answer

A 95% confidence VaR implies there is a 5% probability of exceeding the loss threshold, which occurs roughly 1 in 20 trading days.

Question 4

Which type of risk CANNOT be eliminated through diversification?

Accepted Answer

Systematic risk

Answer

Systematic (market) risk affects all securities and cannot be diversified away, unlike unsystematic or idiosyncratic risk.

Question 5

The standard deviation of a portfolio that holds two perfectly positively correlated assets compared to holding each asset alone is:

Accepted Answer

Equal to the weighted average of the individual standard deviations

Answer

When two assets are perfectly positively correlated (ρ = +1), there is no diversification benefit and portfolio standard deviation equals the weighted average of the individual standard deviations.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC CIC - Certified Investment Counselor Risk Management and Analysis Questions and Answers 1