Practice Test Geeks(CIMA) Certified Investment Management Analyst Practice Test
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Investment Policy & Portfolio Construction Flashcards

7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Investment Policy & Portfolio Construction flashcards as text

  1. Which component of an Investment Policy Statement (IPS) describes the acceptable range of portfolio allocations to each asset class?

    Answer: Asset allocation guidelines

    Asset allocation guidelines in the IPS specify permissible ranges (e.g., 40–60% equities) that keep the portfolio within the client's strategic targets.

  2. A retiree with a 10-year time horizon and moderate risk tolerance asks for a portfolio review. Which factor most directly influences the allowable equity allocation in the IPS?

    Answer: Time horizon and risk tolerance together

    Both time horizon and risk tolerance jointly determine the appropriate equity allocation, as they define how much volatility the client can accept and for how long.

  3. The concept of 'asset-liability management' (ALM) in portfolio construction is BEST described as:

    Answer: Structuring assets to meet future liability cash flows

    ALM aligns asset cash flows with anticipated liability payments, ensuring the portfolio can meet obligations as they come due.

  4. Which of the following BEST represents a 'unique circumstances' constraint in an IPS?

    Answer: Client avoidance of tobacco and weapons manufacturers due to personal values

    Unique circumstances capture client-specific restrictions such as socially responsible investing (SRI) exclusions that do not fall under standard risk or return categories.

  5. When constructing a portfolio for a tax-sensitive client, placing high-yield bonds in a tax-deferred account rather than a taxable account is an example of:

    Answer: Asset location strategy

    Asset location optimizes after-tax returns by placing tax-inefficient assets (like high-yield bonds) in tax-sheltered accounts.

  6. A portfolio manager uses a Monte Carlo simulation to stress-test a client's retirement plan. What is the PRIMARY purpose of this analysis in portfolio construction?

    Answer: To assess the probability of meeting goals across thousands of random scenarios

    Monte Carlo simulation runs thousands of random return paths to estimate the probability distribution of outcomes, revealing shortfall risk across various market conditions.

  7. In the context of a multi-asset portfolio, 'risk budgeting' refers to:

    Answer: Allocating the total portfolio risk allowance across asset classes or strategies

    Risk budgeting allocates a portfolio's overall risk capacity (e.g., tracking error or volatility) proportionally across asset classes or managers.