CIC Client Portfolio Management 5

Question 1

A client holds a large illiquid private equity position. Which portfolio risk does this primarily introduce?

Accepted Answer

Liquidity risk

Answer

Private equity is illiquid, meaning it cannot be quickly sold at fair value, creating liquidity risk if the client needs cash.

Question 2

When constructing a portfolio for a foundation with a perpetual time horizon, which factor is most critical?

Accepted Answer

Generating real returns sufficient to meet spending policy and preserve purchasing power

Answer

A perpetual institution must generate real returns that cover its spending rate and offset inflation to sustain operations indefinitely.

Question 3

A portfolio's standard deviation increased from 10% to 18% after adding a new position. What does this indicate?

Accepted Answer

Overall portfolio volatility increased

Answer

An increase in standard deviation indicates higher total portfolio volatility, meaning greater dispersion of expected returns.

Question 4

Which strategy is most appropriate for a client who needs to fund a child's college tuition in exactly 8 years?

Accepted Answer

Immunization using bonds matched to the liability date

Answer

Immunization matches the bond portfolio's duration to the known future liability date, locking in the needed return regardless of rate movements.

Question 5

A counselor identifies that a client's portfolio has drifted due to market movements. What is the primary risk of NOT rebalancing?

Accepted Answer

The portfolio will exceed the client's intended risk level

Answer

Without rebalancing, asset drift causes the portfolio to take on more or less risk than the client's IPS intended, misaligning with their risk tolerance.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC Client Portfolio Management 5