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

Dollar-cost averaging involves investing fixed amounts at regular intervals, reducing the impact of volatility by buying more shares when prices are low.

Question 2

Which statement best describes 'passive' portfolio management?

Accepted Answer

Tracking a benchmark index with minimal trading

Answer

Passive management aims to replicate a benchmark index's performance with minimal trading costs rather than seeking to outperform it.

Question 3

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

Accepted Answer

It determines the appropriate level of risk and liquidity needed

Answer

Time horizon determines how much risk a portfolio can take on; longer horizons generally allow for higher equity allocations and more volatility tolerance.

Question 4

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

Accepted Answer

Measuring portfolio performance against a standard

Answer

A benchmark serves as a performance standard against which a portfolio's returns and risk can be evaluated.

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

Constraints such as ethical screens, tax considerations, or legal restrictions are documented in the investment policy statement to guide portfolio decisions.

CPS - Certified Portfolio Specialist Practice Test

CPS - Certified Portfolio Specialist Practice Test

CPS Portfolio Construction and Design 3