CFA Portfolio Management 1

Question 1

What is the primary goal of portfolio management?

Accepted Answer

To balance risk and return based on the investor's preferences

Answer

To maximize the wealth of the investor without regard for risk

Answer

To minimize risk regardless of return potential

Answer

To avoid investing in high-growth assets

Question 2

How does diversification help in portfolio management?

Accepted Answer

By minimizing exposure to any particular asset or sector

Answer

By concentrating investments in a single asset class

Answer

By focusing investments on high-risk assets only

Answer

By investing in only one industry sector

Question 3

What is an example of active management in portfolio management?

Accepted Answer

Continuously buying and selling individual securities to outperform the market

Answer

Investing in an index fund that tracks the overall market

Answer

Focusing on buying bonds for long-term growth

Answer

Setting an asset allocation and maintaining it over time

Question 4

What is rebalancing in portfolio management?

Accepted Answer

Adjusting the portfolio's asset allocation back to target levels

Answer

Buying more assets without selling any

Answer

Selling off all assets to avoid losses

Answer

Increasing the amount of cash holdings

Question 5

What is the Capital Asset Pricing Model (CAPM) used for in portfolio management?

Accepted Answer

To assess the expected return of an asset based on its risk

Answer

To predict the future market prices of stocks

Answer

To calculate the optimal asset allocation for a portfolio

Answer

To calculate the portfolio’s overall risk level

Question 6

How does the efficient frontier help in portfolio management?

Accepted Answer

By showing the relationship between risk and return for efficient portfolios

Answer

By identifying the optimal risk-free asset

Answer

By minimizing the portfolio’s total risk regardless of returns

Answer

By showing portfolios with the highest expected returns only