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Portfolio Management & Asset Allocation Flashcards

7 cards from real CIC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. An investor has a portfolio with a beta of 1.4. If the market declines by 10%, what is the expected portfolio decline according to the Capital Asset Pricing Model?

    Answer: 14%

    Beta of 1.4 means the portfolio is expected to move 1.4 times the market, so a 10% market decline implies a 14% portfolio decline.

  2. Which rebalancing strategy triggers a portfolio adjustment only when asset weights drift beyond a predefined threshold?

    Answer: Threshold (corridor) rebalancing

    Threshold or corridor rebalancing triggers rebalancing only when an asset class drifts outside a specified band around its target weight.

  3. A client receives a large inheritance. Using a core-satellite approach, the 'satellite' portion is BEST described as:

    Answer: Active or alternative investments seeking excess returns

    In a core-satellite framework, the satellite consists of active or alternative strategies designed to generate alpha around a passive core.

  4. What does the Sharpe ratio measure?

    Answer: Excess return per unit of total risk (standard deviation)

    The Sharpe ratio is calculated as (portfolio return − risk-free rate) / standard deviation, measuring reward per unit of total risk.

  5. An investment counselor recommends increasing equity allocation during a bull market to capture gains. This is an example of:

    Answer: Tactical asset allocation

    Tactical asset allocation involves short-term deviations from the strategic target to exploit perceived market opportunities.

  6. Which of the following BEST describes the efficient frontier?

    Answer: The set of portfolios with the highest return for a given level of risk

    The efficient frontier represents the set of optimal portfolios offering the maximum expected return for each level of portfolio risk.

  7. Duration matching in liability-driven investing primarily protects a portfolio against:

    Answer: Interest rate risk

    Duration matching aligns the interest rate sensitivity of assets with that of liabilities, neutralizing the impact of parallel yield curve shifts.

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