RIA Portfolio Management 3

Question 1

The efficient frontier represents:

Accepted Answer

Optimal portfolios offering the highest expected return for a given risk level

Answer

The efficient frontier is the set of portfolios that maximize expected return for each level of risk (standard deviation).

Question 2

Correlation between asset classes is important in portfolio construction because:

Accepted Answer

Low or negative correlation reduces portfolio volatility

Answer

Assets with low or negative correlation tend to move independently or oppositely, reducing overall portfolio volatility through diversification.

Question 3

A growth investment style focuses on:

Accepted Answer

Companies with high earnings growth potential

Answer

Growth investing targets companies expected to grow earnings faster than average, often at premium valuations.

Question 4

Which risk measure specifically captures the downside risk of an investment?

Accepted Answer

Sortino ratio

Answer

The Sortino ratio measures return relative to downside deviation, focusing only on harmful volatility (negative returns).

Question 5

Tax-loss harvesting involves:

Accepted Answer

Selling losing positions to offset capital gains

Answer

Tax-loss harvesting sells securities at a loss to offset capital gains elsewhere in the portfolio, reducing tax liability.

(RIA) Registered Investment Advisor Practice Test