CIMA Investment Policy & Portfolio Construction 2

Question 1

Which component of an Investment Policy Statement (IPS) describes the acceptable range of portfolio allocations to each asset class?

Accepted Answer

Asset allocation guidelines

Answer

Asset allocation guidelines in the IPS specify permissible ranges (e.g., 40–60% equities) that keep the portfolio within the client's strategic targets.

Question 2

A retiree with a 10-year time horizon and moderate risk tolerance asks for a portfolio review. Which factor most directly influences the allowable equity allocation in the IPS?

Accepted Answer

Time horizon and risk tolerance together

Answer

Both time horizon and risk tolerance jointly determine the appropriate equity allocation, as they define how much volatility the client can accept and for how long.

Question 3

The concept of 'asset-liability management' (ALM) in portfolio construction is BEST described as:

Accepted Answer

Structuring assets to meet future liability cash flows

Answer

ALM aligns asset cash flows with anticipated liability payments, ensuring the portfolio can meet obligations as they come due.

Question 4

Which of the following BEST represents a 'unique circumstances' constraint in an IPS?

Accepted Answer

Client avoidance of tobacco and weapons manufacturers due to personal values

Answer

Unique circumstances capture client-specific restrictions such as socially responsible investing (SRI) exclusions that do not fall under standard risk or return categories.

Question 5

When constructing a portfolio for a tax-sensitive client, placing high-yield bonds in a tax-deferred account rather than a taxable account is an example of:

Accepted Answer

Asset location strategy

Answer

Asset location optimizes after-tax returns by placing tax-inefficient assets (like high-yield bonds) in tax-sheltered accounts.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Investment Policy & Portfolio Construction 2