CIM Portfolio Management Techniques 2 — Questions and Answers
Question 1: A manager rebalances only when an asset class weight drifts more than ±5% from its target. This approach is known as:
- Calendar rebalancing
- Percentage-of-portfolio (corridor) rebalancing (Correct answer)
- Constant proportion portfolio insurance
- Buy-and-hold
Correct answer: Percentage-of-portfolio (corridor) rebalancing
Corridor rebalancing triggers trades only when weights breach a preset tolerance band, not on a fixed schedule.
Question 2: All else equal, which factor justifies a WIDER rebalancing corridor for an asset class?
- Higher volatility of the asset class
- Higher transaction costs (Correct answer)
- Lower correlation with the rest of the portfolio
- Greater investor risk aversion
Correct answer: Higher transaction costs
Higher trading costs make frequent rebalancing expensive, so a wider band is optimal.
Question 3: Under CPPI, a portfolio worth $100 has a floor of $80 and a multiplier of 3. What is the target equity exposure?
- $20
- $80
- $60 (Correct answer)
- $240
Correct answer: $60
Exposure = multiplier × (value − floor) = 3 × $20 = $60.
Question 4: A constant-mix strategy tends to outperform buy-and-hold in which type of market?
- A strongly trending up market
- A strongly trending down market
- An oscillating, mean-reverting market (Correct answer)
- Any market, regardless of path
Correct answer: An oscillating, mean-reverting market
Constant-mix buys after declines and sells after rises, which pays off when prices reverse.
Question 5: In a core-satellite portfolio structure, the core is typically:
- A low-cost index or enhanced index allocation (Correct answer)
- Concentrated high-conviction active managers
- Hedge funds and private equity
- Cash reserves held for liquidity
Correct answer: A low-cost index or enhanced index allocation
The core delivers cheap beta exposure while satellites pursue alpha.
Question 6: Under US wash-sale rules, a harvested capital loss is disallowed if a substantially identical security is purchased within:
- 10 days after the sale
- 30 days before or after the sale (Correct answer)
- 60 days after the sale only
- The same calendar year
Correct answer: 30 days before or after the sale
The IRS wash-sale window spans 30 days before and after the sale (61 days total).
Question 7: A pension fund gains S&P 500 exposure through futures and invests the freed cash in a market-neutral hedge fund. This technique is:
- Tactical asset allocation
- Immunization
- Cash equitization
- Portable alpha (Correct answer)
Correct answer: Portable alpha
Portable alpha separates beta (from futures) and alpha (from a market-neutral strategy) and combines them.
CIM Portfolio Management Techniques 2
A manager rebalances only when an asset class weight drifts more than ±5% from its target.
This approach is known as: