CIMA Asset Allocation 2

Question 1

Which concept refers to the empirical finding that asset allocation decisions account for the majority of portfolio return variability over time?

Accepted Answer

Policy portfolio dominance

Answer

Security selection effect

Answer

Market timing premium

Answer

Factor loading significance

Question 2

In a liability-driven investing (LDI) framework, the primary goal of asset allocation is to:

Accepted Answer

Match or immunize the portfolio against future liability cash flows

Answer

Maximize total return regardless of liabilities

Answer

Minimize tracking error against a broad market index

Answer

Concentrate in high-yield assets to fund liabilities

Question 3

Core-satellite portfolio construction combines which two elements?

Accepted Answer

A passively managed core with actively managed satellite positions

Answer

Active equities and passive bonds

Answer

Domestic and international allocations

Answer

Long-only and long-short strategies

Question 4

Which of the following is a key advantage of including alternative assets in a traditional stock-bond portfolio?

Accepted Answer

Potential diversification benefits due to low correlation with traditional assets

Answer

Guaranteed higher returns

Answer

Elimination of all downside risk

Answer

Increased liquidity across the entire portfolio

Question 5

The 'glide path' concept in target-date funds refers to:

Accepted Answer

The gradual shift from growth-oriented to more conservative allocations as the target date approaches

Answer

The trajectory of management fees over time

Answer

The process of selecting international versus domestic allocations

Answer

A fixed equity-to-bond ratio maintained throughout the fund's life

Question 6

When rebalancing a portfolio, a 'corridor' or 'threshold' rebalancing strategy triggers a rebalance when:

Accepted Answer

An asset class weight drifts outside a predefined band around its target

Answer

A calendar date (e.g., quarter-end) is reached

Answer

Transaction costs fall below a set level

Answer

The portfolio's Sharpe ratio drops below 1.0

Question 7

Which of the following factors is LEAST likely to be considered when determining an individual investor's appropriate asset allocation?

Accepted Answer

The portfolio manager's personal investment preferences

Answer

Time horizon

Answer

Risk tolerance

Answer

Liquidity needs