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 GIPS (Global Investment Performance Standards) requirement ensures that composite construction fairly represents a firm's track record?

    Answer: All fee-paying discretionary portfolios must be included in at least one composite

    GIPS requires that all fee-paying discretionary portfolios be assigned to at least one composite to prevent cherry-picking of favorable performance records.

  2. When comparing two portfolios with different levels of risk, which performance measure puts them on an equal-risk footing by adjusting both to the market's risk level?

    Answer: M-squared (M²)

    M-squared adjusts each portfolio's return to match the benchmark's total risk level, allowing direct comparison on a common risk basis.

  3. Which of the following risk measures is specifically designed to quantify the sensitivity of a bond's price to changes in yield?

    Answer: Modified duration

    Modified duration measures the percentage change in a bond's price for a 1% change in yield, making it the primary measure of interest rate sensitivity.

  4. Which of the following best describes the Sortino ratio compared to the Sharpe ratio?

    Answer: Sortino penalizes only downside volatility, not upside volatility

    The Sortino ratio replaces standard deviation with downside deviation, so only returns below the target (usually risk-free rate) are penalized.

  5. In a factor-based performance attribution, a manager's portfolio has a higher value-factor loading than the benchmark. If value underperforms during the period, this will contribute a:

    Answer: Negative active return

    Overweighting a factor (value) that underperforms relative to the benchmark will generate a negative contribution to active return during that period.

  6. Which statement correctly differentiates absolute risk from relative risk in portfolio management?

    Answer: Absolute risk measures total portfolio volatility; relative risk measures deviation from a benchmark

    Absolute risk (e.g., standard deviation, VaR) measures the portfolio's total volatility, while relative risk (e.g., tracking error) measures deviation from a specific benchmark.

  7. Which of the following is a primary use of drawdown analysis in portfolio risk management?

    Answer: Measuring the peak-to-trough decline to assess worst-case loss experience

    Maximum drawdown measures the largest peak-to-trough decline in portfolio value, helping investors understand the worst historical loss experience.