CIM Portfolio Management Techniques 2

Question 1

A manager rebalances only when an asset class weight drifts more than ±5% from its target. This approach is known as:

Accepted Answer

Percentage-of-portfolio (corridor) rebalancing

Answer

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?

Accepted Answer

Higher transaction costs

Answer

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?

Accepted Answer

$60

Answer

Exposure = multiplier × (value − floor) = 3 × $20 = $60.

Question 4

A constant-mix strategy tends to outperform buy-and-hold in which type of market?

Accepted Answer

An oscillating, mean-reverting market

Answer

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:

Accepted Answer

A low-cost index or enhanced index allocation

Answer

The core delivers cheap beta exposure while satellites pursue alpha.

CIM - Chartered Investment Manager Practice Test