CSC Portfolio Management Process 5

Question 1

Which statement about tax considerations in portfolio management is most accurate?

Accepted Answer

After-tax returns are more relevant than pre-tax returns for taxable accounts

Answer

For taxable investors, after-tax returns determine actual wealth accumulation, so tax-efficient strategies are a critical part of portfolio construction.

Question 2

A foundation with a mandate to fund charitable grants indefinitely has which type of investment objective?

Accepted Answer

Growth and income with a perpetual time horizon

Answer

A perpetual institution must grow the portfolio to sustain distributions indefinitely, requiring a balance of growth and income over an unlimited time horizon.

Question 3

Which of the following is a consequence of excessive portfolio turnover?

Accepted Answer

Increased transaction costs and potential tax drag

Answer

High portfolio turnover generates transaction costs (commissions, bid-ask spreads) and may trigger taxable capital gains, both of which reduce net returns.

Question 4

The Sharpe ratio measures portfolio performance by comparing excess return to:

Accepted Answer

The portfolio's total risk as measured by standard deviation

Answer

The Sharpe ratio divides excess return (portfolio return minus risk-free rate) by the portfolio's standard deviation, rewarding efficiency in taking on total risk.

Question 5

A portfolio manager moves 15% of a balanced portfolio from equities to bonds because she believes a recession is imminent. This action is an example of:

Accepted Answer

Tactical asset allocation

Answer

Tactical asset allocation involves deliberately deviating from strategic target weights in the short term based on market or economic views.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Portfolio Management Process 5