CTFA Investment Management for Trust Accounts

Question 1

Which asset allocation concept involves periodically restoring a portfolio to its target allocation after market movements have caused drift?

Accepted Answer

Rebalancing

Answer

Dollar-cost averaging

Answer

Tax-loss harvesting

Answer

Asset location

Question 2

What does the Sharpe ratio measure in portfolio analysis?

Accepted Answer

Risk-adjusted return expressed as excess return per unit of total risk (standard deviation)

Answer

Total return relative to a benchmark index

Answer

The portfolio's sensitivity to market movements (beta)

Answer

The percentage of return attributable to the manager's skill

Question 3

Under modern portfolio theory, which concept describes the set of optimal portfolios offering the highest expected return for each level of risk?

Accepted Answer

The efficient frontier

Answer

The capital market line

Answer

The security market line

Answer

The minimum variance portfolio

Question 4

What is the primary purpose of including alternative investments such as real estate or commodities in a trust portfolio?

Accepted Answer

To reduce overall portfolio volatility through diversification and low correlation with stocks and bonds

Answer

To maximize current income distributed to income beneficiaries

Answer

To satisfy state legal list requirements for trust investments

Answer

To eliminate exposure to equity market risk entirely

Question 5

Which fixed-income measure describes the sensitivity of a bond's price to changes in interest rates?

Accepted Answer

Duration

Answer

Convexity

Answer

Yield to maturity

Answer

Current yield

Question 6

What is asset location in the context of trust and tax-efficient investing?

Accepted Answer

Placing assets in accounts where their tax characteristics provide the greatest after-tax benefit

Answer

Selecting the geographic regions where trust assets should be invested

Answer

Determining the legal situs of the trust for state income tax purposes

Answer

Identifying the physical location of trust-held real property