Practice Test GeeksIFC - Investment Funds in Canada Practice Test
← All IFC Flashcard Decks

Constructing Investment Portfolios Flashcards

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

Read the first 7 Constructing Investment Portfolios flashcards as text

  1. A client with a moderate risk profile asks for a portfolio recommendation. Which allocation is most appropriate?

    Answer: 50% equities / 50% fixed income

    A 50/50 equity/fixed-income split balances growth potential with capital preservation, consistent with a moderate risk tolerance.

  2. Which of the following best describes 'home bias' in portfolio construction?

    Answer: Overweighting domestic securities relative to a globally diversified benchmark

    Home bias is the tendency for investors to over-allocate to their domestic market, reducing international diversification benefits.

  3. Which type of fund is designed to automatically adjust its asset allocation as the target date approaches?

    Answer: Target-date (lifecycle) fund

    Target-date funds automatically shift from higher equity exposure to more conservative fixed-income allocations as the specified retirement or goal date nears.

  4. What is the primary advantage of using ETFs in a portfolio construction strategy?

    Answer: Low-cost, transparent, and tax-efficient market exposure

    ETFs provide diversified market exposure at low cost, with intraday liquidity and generally greater tax efficiency compared to traditional mutual funds.

  5. A portfolio manager adds a real return bond to a client's portfolio. What primary risk is being hedged?

    Answer: Inflation risk

    Real return bonds (like Canadian RRBs) pay returns linked to the Consumer Price Index, protecting the portfolio's purchasing power against inflation.

  6. Which of the following is a key drawback of over-diversification in a portfolio?

    Answer: It may dilute returns and make the portfolio resemble an index at higher cost

    Over-diversification can reduce the portfolio's ability to outperform because returns converge toward average market performance, negating the benefit of active selection at a potentially higher cost.

  7. When constructing a fixed-income portfolio, 'laddering' refers to:

    Answer: Staggering bond maturities across multiple time periods

    A bond ladder spreads maturities across short, medium, and long terms so that portions mature regularly, reducing interest rate risk and providing reinvestment opportunities.