CPS Portfolio Construction and Design 3

Question 1

What is 'dollar-cost averaging' in portfolio management?

Accepted Answer

Investing fixed amounts at regular intervals regardless of price

Answer

Investing a lump sum all at once

Answer

Only buying when prices drop

Answer

Averaging down on losing positions only

Question 2

Which statement best describes 'passive' portfolio management?

Accepted Answer

Tracking a benchmark index with minimal trading

Answer

Frequent trading to beat the market

Answer

Avoiding equity investments

Answer

Using only active fund managers

Question 3

What role does 'time horizon' play in portfolio design?

Accepted Answer

It determines the appropriate level of risk and liquidity needed

Answer

It has no effect on asset allocation

Answer

It only affects bond maturity selection

Answer

It dictates geographic allocation

Question 4

What is a 'benchmark' used for in portfolio management?

Accepted Answer

Measuring portfolio performance against a standard

Answer

Determining how many stocks to buy

Answer

Setting the minimum investment amount

Answer

Calculating management fees

Question 5

Which of the following is an example of a 'constraint' in an investment policy statement?

Accepted Answer

Prohibition on investing in tobacco companies

Answer

Expected rate of return

Answer

Standard deviation target

Answer

Sharpe ratio minimum

Question 6

What does 'tracking error' measure in portfolio analysis?

Accepted Answer

The deviation of a portfolio's returns from its benchmark

Answer

The number of data entry mistakes

Answer

Transaction cost overruns

Answer

The difference between gross and net returns