CPM Asset Allocation & Diversification

Question 1

The primary goal of strategic asset allocation (SAA) is to:

Accepted Answer

Establish long-term target weights for asset classes aligned with investor objectives

Answer

Maximize short-term trading profits

Answer

Replicate a market-cap-weighted index

Answer

Minimize tax liability

Question 2

Tactical asset allocation (TAA) differs from strategic asset allocation in that it:

Accepted Answer

Makes short-term adjustments to exploit perceived market opportunities

Answer

Is set once and never changed

Answer

Ignores risk tolerance

Answer

Only applies to fixed income

Question 3

The efficient frontier represents portfolios that:

Accepted Answer

Offer the maximum expected return for a given level of risk

Answer

Earn the highest return regardless of risk

Answer

Are equally weighted across all asset classes

Answer

Hold only risk-free assets

Question 4

Which of the following is the primary benefit of international diversification?

Accepted Answer

Reduction of portfolio risk by including assets with low correlation to domestic holdings

Answer

Elimination of all currency risk

Answer

Higher guaranteed returns

Answer

Simplified tax reporting

Question 5

In a mean-variance optimization framework, which input has the greatest impact on portfolio construction outcomes?

Accepted Answer

Expected return estimates

Answer

Risk-free rate

Answer

Dividend yields

Answer

Expense ratios

Question 6

Which of the following asset classes typically provides the best inflation hedge in a long-term portfolio?

Accepted Answer

Real assets such as real estate, commodities, and TIPS

Answer

Cash equivalents

Answer

U.S. Treasury bills

Answer

Short-duration bonds