Financial Advisor Investment Planning and Portfolio Management

Question 1

Which investment theory states that rational investors should hold efficient portfolios that maximize return for a given level of risk?

Accepted Answer

Modern Portfolio Theory (MPT)

Answer

Efficient Market Hypothesis

Answer

Capital Asset Pricing Model

Answer

Arbitrage Pricing Theory

Question 2

In the Capital Asset Pricing Model (CAPM), what does a beta of 1.5 indicate about a security?

Accepted Answer

It moves 1.5 times the market's movements in the same direction

Answer

It is 50% less volatile than the market

Answer

It has a 1.5% expected return

Answer

It is inversely correlated with the market

Question 3

Which asset allocation strategy automatically rebalances a portfolio to maintain a constant stock-to-bond ratio?

Accepted Answer

Strategic asset allocation

Answer

Tactical asset allocation

Answer

Constant-proportion portfolio insurance (CPPI)

Answer

Dynamic asset allocation

Question 4

What is the Sharpe ratio used to measure in portfolio analysis?

Accepted Answer

Risk-adjusted return per unit of total risk

Answer

Total portfolio return

Answer

The correlation between two assets

Answer

A portfolio's exposure to interest rate risk

Question 5

Dollar-cost averaging is best described as:

Accepted Answer

Investing equal dollar amounts at regular intervals regardless of price

Answer

Investing a lump sum at market lows

Answer

Rebalancing to equal dollar weights across all holdings

Answer

Averaging down by buying more shares as prices fall

Question 6

Which type of risk CANNOT be eliminated through diversification?

Accepted Answer

Systematic (market) risk

Answer

Business risk

Answer

Liquidity risk

Answer

Default risk