Practice Test GeeksFinancial Advisor Practice Test
← All Financial Advisor Flashcard Decks

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 in the 37% marginal tax bracket earns 6% on a taxable bond. What after-tax yield must a municipal bond offer to be equivalent?

    Answer: 3.78%

    Tax-equivalent yield = taxable yield × (1 − tax rate) = 6% × (1 − 0.37) = 3.78%.

  2. Which portfolio construction concept holds that adding an asset with low correlation to an existing portfolio can reduce overall portfolio risk without sacrificing expected return?

    Answer: Diversification benefit

    The diversification benefit arises when assets with low or negative correlations are combined, reducing total portfolio variance.

  3. An advisor recommends shifting a client's equity allocation from 70% to 50% because of near-term recession concerns. This is an example of:

    Answer: Tactical asset allocation

    Tactical asset allocation involves short-term, active deviations from the long-term strategic target based on market outlook.

  4. What does a portfolio's R-squared (R²) statistic tell a financial advisor?

    Answer: The percentage of portfolio variance explained by movements in its benchmark

    R² measures how closely a portfolio's performance tracks its benchmark, ranging from 0 (no correlation) to 100 (perfect correlation).

  5. A 35-year-old client with a high risk tolerance and 30-year time horizon asks for a portfolio. Which allocation is MOST suitable?

    Answer: 80% equities / 20% bonds

    A long time horizon and high risk tolerance support a growth-oriented allocation heavily weighted toward equities.

  6. Which risk is NOT reduced through diversification within a domestic equity portfolio?

    Answer: Systematic (market) risk

    Systematic risk affects the entire market and cannot be eliminated through diversification; only unsystematic (specific) risk can be diversified away.

  7. A client's Investment Policy Statement (IPS) specifies a maximum single-security concentration of 5%. This is an example of which IPS component?

    Answer: Risk constraint

    Concentration limits are risk constraints that prevent excessive exposure to any single holding, protecting against idiosyncratic loss.