CIC Client Portfolio Management 2

Question 1

A client with a 70/30 equity/bond allocation experiences a market rally that shifts it to 80/20. What action should the counselor take?

Accepted Answer

Rebalance back to 70/30 to restore the target allocation

Answer

Leave it unchanged since equities outperformed

Answer

Shift entirely to equities to capture further gains

Answer

Liquidate the portfolio and reinvest at year-end

Question 2

Which measure best evaluates a portfolio manager's risk-adjusted performance relative to a benchmark?

Accepted Answer

Information ratio

Answer

Gross return

Answer

Total assets under management

Answer

Dividend yield

Question 3

A client asks about the tax benefit of placing municipal bonds in a taxable account. What is the primary advantage?

Accepted Answer

Interest income is generally exempt from federal income tax

Answer

Higher coupon rates than Treasuries

Answer

Gains are tax-deferred until maturity

Answer

They are FDIC insured

Question 4

An investor wants maximum diversification across U.S. stocks. Which portfolio construction approach is most efficient?

Accepted Answer

Broad market-cap-weighted index fund

Answer

Concentrated position in 5 blue-chip stocks

Answer

Equal weighting of 10 sector ETFs

Answer

Active stock-picking in a single sector

Question 5

Which risk is NOT reduced through portfolio diversification?

Accepted Answer

Systematic (market) risk

Answer

Business risk

Answer

Liquidity risk

Answer

Company-specific risk

Question 6

A retired client needs monthly income. Which portfolio strategy best addresses this need?

Accepted Answer

Systematic withdrawal plan from a balanced portfolio

Answer

100% growth equities

Answer

100% speculative options positions

Answer

Concentrated real estate investment

Question 7

What does a negative Sharpe ratio indicate about a portfolio?

Accepted Answer

The portfolio underperformed the risk-free rate on a risk-adjusted basis

Answer

The portfolio earned more than the risk-free rate

Answer

Volatility was zero

Answer

The benchmark outperformed the market