CIMA Investment Policy and Process 4

Question 1

When assessing a client's 'ability to take risk,' an advisor should primarily consider:

Accepted Answer

The client's financial capacity to absorb losses without jeopardizing goals

Answer

Ability to take risk is an objective assessment based on financial factors such as time horizon, liquidity needs, income stability, and wealth relative to goals.

Question 2

A 'benchmark portfolio' specified in an IPS serves primarily to:

Accepted Answer

Provide a standard against which portfolio performance is evaluated

Answer

A benchmark provides a fair, relevant standard for evaluating whether the investment manager has added or destroyed value relative to a passive alternative.

Question 3

The 'investment policy statement' for a high-net-worth individual typically includes all of the following EXCEPT:

Accepted Answer

Specific security recommendations from the manager

Answer

An IPS establishes goals, guidelines, and constraints at the policy level but does not include specific security picks, which are left to the portfolio manager's discretion.

Question 4

Which of the following scenarios most appropriately calls for a more conservative investment policy?

Accepted Answer

A 68-year-old retiree fully dependent on portfolio distributions for living expenses

Answer

A retiree fully dependent on portfolio income has high liquidity needs, a shorter time horizon, and cannot easily recover from large losses — requiring a more conservative policy.

Question 5

In developing capital market expectations, the 'building block' approach estimates equity returns by combining:

Accepted Answer

Expected inflation, real interest rate, and equity risk premium components

Answer

The building block approach decomposes expected equity returns into components: expected inflation, real risk-free rate, and the equity risk premium as additive building blocks.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Investment Policy and Process 4