CIMA Investment Policy & Portfolio Construction 3

Question 1

Which of the following is an example of a 'liquidity constraint' that would be documented in an IPS?

Accepted Answer

A need to withdraw $50,000 annually for living expenses

Answer

Liquidity constraints specify expected cash outflow needs, which require the portfolio to maintain sufficient liquid assets to meet withdrawals without forced asset sales.

Question 2

A 'goals-based' portfolio construction approach differs from a mean-variance approach primarily because it:

Accepted Answer

Segments assets into mental accounts tied to specific life goals

Answer

Goals-based investing builds separate sub-portfolios (mental accounts) aligned to distinct goals such as retirement, education, or a legacy, rather than optimizing one aggregate portfolio.

Question 3

Strategic asset allocation (SAA) is BEST described as:

Accepted Answer

A long-term target mix of asset classes aligned with the investor's IPS objectives

Answer

SAA establishes a long-term policy portfolio that reflects the investor's return objectives, risk tolerance, and constraints as stated in the IPS.

Question 4

Which statement about tactical asset allocation (TAA) is MOST accurate?

Accepted Answer

TAA involves temporary, deliberate deviations from SAA to exploit market opportunities

Answer

TAA makes short-term shifts away from the strategic benchmark weights based on market views, intending to add alpha before reverting to the policy mix.

Question 5

When evaluating a client's 'ability to bear risk,' which factor is MOST relevant?

Accepted Answer

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

Answer

Ability to bear risk is an objective, financial measure based on wealth, income stability, and time horizon, distinct from the subjective willingness to take risk.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Investment Policy & Portfolio Construction 3