CIC Portfolio Management & Asset Allocation 2

Question 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?

Accepted Answer

14%

Answer

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.

Question 2

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

Accepted Answer

Threshold (corridor) rebalancing

Answer

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

Question 3

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

Accepted Answer

Active or alternative investments seeking excess returns

Answer

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

Question 4

What does the Sharpe ratio measure?

Accepted Answer

Excess return per unit of total risk (standard deviation)

Answer

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

Question 5

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

Accepted Answer

Tactical asset allocation

Answer

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

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC Portfolio Management & Asset Allocation 2