CPFM Investment Portfolio Management 3

Question 1

A bond's duration measures its sensitivity to changes in:

Accepted Answer

Interest rates

Answer

Duration estimates how much a bond's price changes for a given change in interest rates.

Question 2

What does alpha represent in portfolio performance?

Accepted Answer

Excess return above the benchmark expected return

Answer

Alpha is the return earned beyond what the model predicts given the portfolio's risk, reflecting manager skill.

Question 3

A correlation coefficient of -1 between two assets indicates:

Accepted Answer

They move in perfectly opposite directions

Answer

A correlation of -1 means the assets move in perfectly opposite directions, offering strong diversification.

Question 4

Tactical asset allocation differs from strategic allocation because it:

Accepted Answer

Makes short-term shifts to exploit market opportunities

Answer

Tactical allocation temporarily deviates from strategic targets to capitalize on perceived short-term opportunities.

Question 5

Value at Risk (VaR) estimates:

Accepted Answer

Potential loss over a period at a given confidence level

Answer

VaR estimates the maximum expected loss over a defined horizon at a specified confidence level.

CPFM Practice Test