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Investment Planning and Portfolio Management Flashcards

7 cards from real Financial Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Investment Planning and Portfolio Management flashcards as text

  1. A client's portfolio has a beta of 1.4. If the market rises 10%, what is the expected portfolio return according to the Capital Asset Pricing Model (CAPM)?

    Answer: 14%

    Beta of 1.4 means the portfolio is expected to move 1.4x the market, so a 10% market gain yields an expected 14% portfolio return.

  2. Which rebalancing strategy triggers a portfolio adjustment only when an asset class drifts beyond a defined percentage threshold?

    Answer: Threshold (percentage-of-portfolio) rebalancing

    Threshold rebalancing triggers trades when an allocation deviates beyond a preset band (e.g., ±5%), rather than on a fixed schedule.

  3. An investor buys a stock at $50, sells a call option on it for $3, and sets a limit sell at $55. This strategy is best described as a:

    Answer: Covered call

    Selling a call against an existing stock position is a covered call, which generates premium income while capping upside.

  4. The Sharpe ratio of Portfolio A is 0.9 and Portfolio B is 0.6. What does this indicate?

    Answer: Portfolio A provides more return per unit of total risk

    The Sharpe ratio measures excess return per unit of total risk (standard deviation), so Portfolio A delivers better risk-adjusted performance.

  5. A 60/40 equity/bond portfolio drifts to 70/30 after a strong equity rally. Selling equities to restore the 60/40 target is an example of:

    Answer: Strategic rebalancing

    Selling outperforming assets to restore the original target allocation is strategic (or systematic) rebalancing.

  6. Which measure captures only the downside volatility of a portfolio, treating upside variance as acceptable?

    Answer: Sortino ratio

    The Sortino ratio uses downside deviation in place of standard deviation, penalizing only harmful (below-target) volatility.

  7. A client wants inflation protection and steady income in retirement. Which asset class is MOST appropriate to add to their portfolio?

    Answer: Treasury Inflation-Protected Securities (TIPS)

    TIPS adjust their principal with inflation and pay interest on the adjusted value, directly protecting purchasing power.