AFP AFP Investment Portfolio Management

Question 1

Which investment policy statement component defines the acceptable range of risk a corporate treasury can assume?

Accepted Answer

Risk tolerance

Answer

The risk tolerance component of an investment policy statement defines the boundaries of acceptable risk for the organization's portfolio.

Question 2

What is the primary purpose of laddering a fixed-income portfolio for a corporate treasury?

Accepted Answer

To smooth reinvestment risk over time

Answer

Laddering staggers bond maturities so proceeds are reinvested at different points in time, reducing reinvestment rate risk.

Question 3

Under AFP guidelines, which metric best measures the total return of a short-term investment portfolio?

Accepted Answer

Total return (income + price appreciation)

Answer

Total return captures both income and price changes, giving the most comprehensive view of portfolio performance.

Question 4

Which type of U.S. government security is most commonly used by corporate treasury to meet liquidity needs?

Accepted Answer

Treasury bills (T-bills)

Answer

T-bills have short maturities and high liquidity, making them ideal for corporate treasuries that need quick access to cash.

Question 5

What does duration measure in a fixed-income investment?

Accepted Answer

Sensitivity of price to interest rate changes

Answer

Duration measures how much a bond's price will change for a given change in interest rates, expressed in years.

AFP - Association for Financial Professionals Practice Test