QFC QFC Portfolio Management & Asset Allocation 1

Question 1

Which portfolio optimization technique minimizes portfolio variance for a given expected return?

Accepted Answer

Mean-variance optimization

Answer

Mean-variance optimization, developed by Markowitz, minimizes portfolio variance for a specified expected return level.

Question 2

In the context of asset allocation, what does 'rebalancing' refer to?

Accepted Answer

Realigning portfolio weights back to target allocations

Answer

Rebalancing restores portfolio weights to their strategic targets after market movements cause drift.

Question 3

What is the Sharpe ratio used to measure?

Accepted Answer

Risk-adjusted return per unit of total risk

Answer

The Sharpe ratio divides excess return over the risk-free rate by the portfolio's standard deviation to measure risk-adjusted performance.

Question 4

Which allocation strategy systematically shifts from equities to bonds as an investor approaches retirement?

Accepted Answer

Glide path (lifecycle) allocation

Answer

A glide path strategy gradually reduces equity exposure and increases fixed-income weight as the target date nears.

Question 5

In the Black-Litterman model, what inputs does the investor provide in addition to market equilibrium returns?

Accepted Answer

Proprietary views and confidence levels

Answer

Black-Litterman blends equilibrium returns with investor-specified views and their confidence levels to produce adjusted expected returns.

(QFC) Quantitative Finance Certification Practice Test