FREE CPM Portfolio Construction Questions and Answers

Question 1

What is the primary goal of portfolio construction?

Accepted Answer

Optimize risk-return balance aligned to objectives

Answer

Maximize short-term gains

Answer

Invest only in equities

Answer

Focus solely on liquidity

Question 2

Which of the following best describes diversification in a portfolio?

Accepted Answer

Allocating funds across multiple uncorrelated assets

Answer

Investing in a single asset class

Answer

Concentrating funds in one sector

Answer

Only holding cash equivalents

Question 3

Why is asset allocation important in portfolio construction?

Accepted Answer

It drives the portfolio’s risk and return profile

Answer

It simplifies tax reporting

Answer

It eliminates market risk

Answer

It ensures fixed returns

Question 4

What is a key benefit of rebalancing a portfolio periodically?

Accepted Answer

Maintain desired asset allocation and manage risk

Answer

Increase transaction costs

Answer

Avoid market participation

Answer

Guarantee higher returns

Question 5

Which strategy aims to construct a portfolio that closely matches the risk and return of a market index?

Accepted Answer

Passive indexing

Answer

Active management

Answer

Momentum trading

Answer

Event-driven investing

Question 6

What type of risk is diversification most effective at reducing?

Accepted Answer

Unsystematic risk

Answer

Systematic market risk

Answer

Currency risk

Answer

Inflation risk

Question 7

Which measure is commonly used to assess the risk-adjusted return of a portfolio?

Accepted Answer

Sharpe Ratio

Answer

Beta

Answer

Alpha

Answer

Dividend yield

Question 8

Which factor is least likely to influence a portfolio’s asset allocation strategy?

Accepted Answer

Clothing preferences

Answer

Risk tolerance

Answer

Investment objectives

Answer

Time horizon

Question 9

What is a 'core-satellite' portfolio strategy?

Accepted Answer

Blend passive core holdings with active satellite positions

Answer

Invest entirely in cash

Answer

Focus solely on volatile assets

Answer

Exclude diversification entirely