CIMA Study Guide 2026

The real interest rate represents the true return on an investment after accounting for the effects of inflation. It is calculated by subtracting the inflation rate from the nominal interest rate. This calculation provides a more accurate picture of the purchasing power gained from an investment, as it adjusts for the erosion of value caused by rising prices.

Jensen's alpha is calculated using the Capital Asset Pricing Model (CAPM) formula: Alpha = Portfolio Return - [Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)]. Plugging in the values: Alpha = 12% - [2% + 1.2 * (10% - 2%)] = 12% - [2% + 1.2 * 8%] = 12% - [2% + 9.6%] = 12% - 11.6% = 0.4%. A positive alpha indicates the manager outperformed the expected return for the given level of systematic risk.

A long-horizon, well-funded defined benefit plan can afford to accept illiquidity risk in exchange for the potential liquidity premium embedded in private equity and similar asset classes.

The IPS must reflect the client's true risk capacity and tolerance, including behavioral tendencies like loss aversion, to ensure the strategy is sustainable long-term.

Core-satellite combines a large, low-cost passively managed core for broad market exposure with smaller active or alternative satellite positions intended to generate alpha.

The Consumer Price Index (CPI) is the most commonly used economic indicator to measure inflation. It tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. A rising CPI indicates that goods and services are becoming more expensive, signifying inflation.