Practice Test Geeks(CIMA) Certified Investment Management Analyst Practice Test
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Risk and Performance Measurement 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 Risk and Performance Measurement flashcards as text

  1. Which of the following measures is most appropriate for evaluating a manager who runs a market-neutral long/short equity strategy?

    Answer: Sharpe ratio

    The Sharpe ratio is appropriate for market-neutral strategies because it uses total risk (standard deviation) rather than beta, which approaches zero for such strategies.

  2. The M-squared (M²) performance measure adjusts a portfolio's return to:

    Answer: Match the benchmark's level of total risk

    M-squared (Modigliani-Modigliani) adjusts the portfolio's return as if it had the same total risk (standard deviation) as the benchmark, enabling direct return comparison.

  3. Which statement about Value at Risk (VaR) is correct?

    Answer: VaR estimates the loss that will not be exceeded with a given confidence level

    VaR represents the maximum expected loss over a specified period at a defined confidence level (e.g., 95% or 99%), not an absolute maximum loss.

  4. In the Brinson-Hood-Beebower performance attribution model, the interaction effect arises from:

    Answer: The combined impact of allocation and selection decisions

    The interaction effect captures the joint impact of over/underweighting a sector AND the selection skill within that same sector.

  5. Which risk factor in the Fama-French three-factor model is associated with the return premium of small-cap stocks over large-cap stocks?

    Answer: SMB (Small Minus Big)

    SMB (Small Minus Big) captures the historical return premium that small-capitalization stocks have earned over large-capitalization stocks.

  6. A portfolio manager with a tracking error of 2% and an Information Ratio of 0.75 is generating an active return of approximately:

    Answer: 1.50%

    Active return = Information Ratio × Tracking Error = 0.75 × 2% = 1.50%.

  7. Which of the following best characterizes liquidity risk in an investment portfolio?

    Answer: The risk that a position cannot be sold quickly without significantly impacting its price

    Liquidity risk is the inability to exit a position quickly at or near fair value, often resulting in forced discounts or market price impact.