RFC Investment Strategies & Portfolio Management 3

Question 1

Which investment strategy aims to replicate the risk/return profile of a liability stream, minimizing the surplus volatility between assets and liabilities?

Accepted Answer

Liability-Driven Investing (LDI)

Answer

LDI structures the asset portfolio to match the duration and cash flow characteristics of liabilities, reducing funded-status volatility.

Question 2

The Black-Litterman model improves upon mean-variance optimization primarily by:

Accepted Answer

Incorporating investor views with market equilibrium returns

Answer

Black-Litterman blends the investor's subjective views with implied equilibrium returns derived from market capitalization weights to produce more stable portfolios.

Question 3

A 60/40 portfolio refers to an allocation of:

Accepted Answer

60% equities and 40% fixed income

Answer

The classic 60/40 portfolio allocates 60% to equities for growth and 40% to bonds for stability and income, serving as a traditional balanced benchmark.

Question 4

Which scenario best illustrates a 'barbell' fixed income strategy?

Accepted Answer

Concentration in short-term and long-term bonds with little intermediate exposure

Answer

A barbell strategy concentrates holdings at both ends of the maturity spectrum, balancing liquidity from short-term bonds with yield from long-term bonds.

Question 5

What is 'portable alpha' in portfolio management?

Accepted Answer

Separating alpha generation from beta exposure and overlaying alpha onto any benchmark

Answer

Portable alpha uses derivatives to gain desired market (beta) exposure while separately investing in an alpha-generating strategy, decoupling the two return sources.

(RFC) Registered Financial Consultant Practice Test

(RFC) Registered Financial Consultant Practice Test

RFC Investment Strategies & Portfolio Management 3