CSC Portfolio Management Process 4

Question 1

Which of the following best illustrates a 'time horizon' constraint in a portfolio?

Accepted Answer

A pension fund that must pay retirees monthly starting in 5 years

Answer

A time horizon constraint reflects when the client needs the funds, directly affecting how much risk and illiquidity can be accepted.

Question 2

The efficient frontier in portfolio theory represents portfolios that:

Accepted Answer

Offer the maximum expected return for each level of risk

Answer

The efficient frontier plots portfolios that achieve the highest possible return for a given level of risk, representing optimal diversification.

Question 3

A client instructs their portfolio manager not to invest more than 10% of the portfolio in any single issuer. This is an example of which type of constraint?

Accepted Answer

Concentration limit / unique circumstance

Answer

A concentration limit set by the client to cap exposure to any single issuer is a unique circumstance constraint documented in the IPS.

Question 4

Which performance measurement approach calculates returns that are unaffected by the timing of client cash flows?

Accepted Answer

Time-weighted rate of return

Answer

The time-weighted rate of return eliminates the impact of external cash flows, making it the standard for evaluating portfolio manager skill.

Question 5

A manager who consistently takes on more systematic risk than the benchmark to generate higher returns is said to be generating returns through:

Accepted Answer

Beta exposure

Answer

Returns driven by higher exposure to systematic market risk (beta) reflect risk-taking rather than manager skill (alpha).

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Portfolio Management Process 4