CPS Risk Management in Portfolios

Question 1

What is 'systematic risk' in portfolio management?

Accepted Answer

Market-wide risk that cannot be diversified away

Answer

Risk specific to a single company

Answer

Risk from poor record-keeping

Answer

Risk from currency fluctuations only

Question 2

What does 'beta' measure in portfolio risk analysis?

Accepted Answer

A portfolio's sensitivity to market movements

Answer

A portfolio's total return

Answer

The portfolio's dividend yield

Answer

The credit quality of bonds

Question 3

What is 'unsystematic risk' also called?

Accepted Answer

Idiosyncratic or company-specific risk

Answer

Market risk

Answer

Inflation risk

Answer

Interest rate risk

Question 4

Which tool is commonly used to hedge against portfolio downside risk?

Accepted Answer

Put options on the portfolio or index

Answer

Additional equity purchases

Answer

Increasing cash to 100%

Answer

Buying junk bonds

Question 5

What does 'Value at Risk' (VaR) estimate?

Accepted Answer

The maximum expected loss over a specific period at a given confidence level

Answer

The maximum possible gain in a portfolio

Answer

The average annual return

Answer

The total assets under management

Question 6

How does 'duration' relate to interest rate risk for bond portfolios?

Accepted Answer

Higher duration means greater sensitivity to interest rate changes

Answer

Higher duration means less sensitivity to interest rate changes

Answer

Duration has no relationship to interest rate risk

Answer

Duration only applies to equity portfolios