CPM Risk Management 2

Question 1

Systematic risk in a portfolio is best measured by:

Accepted Answer

Beta

Answer

Beta measures the sensitivity of a portfolio's returns to broad market movements, capturing the systematic (non-diversifiable) component of risk.

Question 2

Which of the following best describes idiosyncratic risk?

Accepted Answer

Risk specific to an individual security that can be diversified away

Answer

Idiosyncratic (unsystematic) risk is company- or sector-specific and can be reduced or eliminated through diversification across many holdings.

Question 3

A portfolio with a tracking error of 8% relative to its benchmark is described as:

Accepted Answer

Highly active with significant deviation from the benchmark

Answer

A tracking error of 8% indicates substantial divergence from the benchmark, reflecting a highly active management style with meaningful active bets.

Question 4

Liquidity risk in a portfolio is MOST concerning when:

Accepted Answer

The portfolio holds large positions in thinly traded securities and faces redemption demands

Answer

Liquidity risk is highest when a manager must sell large positions in illiquid securities quickly, potentially at significant discounts, especially under redemption pressure.

Question 5

Which of the following best describes model risk in portfolio management?

Accepted Answer

The risk that quantitative models produce inaccurate results or are applied incorrectly

Answer

Model risk arises when the assumptions or implementation of quantitative models are flawed, leading to incorrect valuations, risk estimates, or investment decisions.

CPM - Certified Portfolio Manager Practice Test

CPM - Certified Portfolio Manager Practice Test

CPM Risk Management 2