CFM Risk Assessment & Asset Allocation

Question 1

What is the primary goal of asset allocation?

Accepted Answer

To diversify and manage risk effectively

Answer

Asset allocation helps investors balance risk and reward by distributing investments among different asset classes.

Question 2

What is a risk tolerance questionnaire used for?

Accepted Answer

To determine an investor's risk capacity and preferences

Answer

It helps determine how much risk an investor is willing and able to take based on their goals, time horizon, and financial situation.

Question 3

Which portfolio strategy adjusts allocation based on market trends?

Accepted Answer

Tactical asset allocation

Answer

Tactical asset allocation is a dynamic strategy that adjusts portfolio weights to take advantage of market conditions.

Question 4

What is considered a low-risk investment?

Accepted Answer

Government treasury bonds

Answer

Low-risk investments typically provide lower returns and include instruments like government bonds or high-yield savings accounts.

Question 5

Why is diversification important in portfolio management?

Accepted Answer

It spreads risk across multiple investments

Answer

Diversification reduces the impact of poor performance from a single asset class or investment on the overall portfolio.

(CFM) Certified Fund Manager Practice Test