CISI IAD Advanced Investment Analysis

Question 1

What is the 'Sharpe ratio' and what does it measure?

Accepted Answer

A measure of risk-adjusted return calculated by dividing the portfolio's excess return (above the risk-free rate) by its standard deviation

Answer

The ratio of a portfolio's gross return to its benchmark return

Answer

The ratio of a fund's annual management charge to its alpha generation

Answer

The ratio of a portfolio's equity allocation to its bond allocation

Question 2

What is 'alpha' in the context of investment performance?

Accepted Answer

The excess return of a portfolio above its benchmark, adjusted for risk, indicating the value added (or destroyed) by active management

Answer

The risk premium earned by holding equities over bonds

Answer

The sensitivity of a portfolio to market movements

Answer

The annual return on the risk-free rate

Question 3

What is the 'information ratio' used to assess in investment management?

Accepted Answer

The consistency and magnitude of a manager's outperformance relative to a benchmark, calculated as active return divided by tracking error

Answer

The ratio of a manager's communication quality to their return

Answer

The ratio of a fund's information technology costs to its AUM

Answer

The ratio of fundamental analysis to technical analysis in a manager's process

Question 4

What is 'tracking error' in portfolio management?

Accepted Answer

The standard deviation of the difference between a portfolio's returns and its benchmark returns, measuring how closely the portfolio follows the benchmark

Answer

The number of administrative errors made in portfolio rebalancing

Answer

The percentage of orders that fail to execute at the intended price

Answer

The cost of rebalancing a portfolio to its target weights

Question 5

What is 'fundamental analysis' in the context of equity valuation?

Accepted Answer

The analysis of a company's financial statements, business model, competitive position, and economic factors to determine its intrinsic value

Answer

The analysis of historical share price patterns to predict future prices

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The analysis of trading volumes and momentum indicators

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The analysis of a company's technical infrastructure and systems

Question 6

What is the 'dividend discount model' (DDM)?

Accepted Answer

A model that values a share by discounting all expected future dividends back to their present value

Answer

A model for calculating the fair value of a bond based on its coupon payments

Answer

A model that assesses dividend sustainability by comparing payout ratio to earnings

Answer

A model that identifies which shares are likely to increase their dividend in the next year