RMA Investment Management & Asset Allocation 2

Question 1

A retiree's portfolio is 60% equities and 40% bonds. After a strong equity rally, the mix drifts to 75/25. What is the PRIMARY reason an RMA adviser would rebalance?

Accepted Answer

To restore the risk profile aligned with the client's investment policy statement

Answer

Rebalancing restores the portfolio to its target allocation, maintaining the risk level documented in the investment policy statement.

Question 2

Which risk measure quantifies the potential loss in a portfolio over a given time period at a specific confidence level?

Accepted Answer

Value at Risk (VaR)

Answer

Value at Risk (VaR) expresses the maximum expected loss over a defined period at a given confidence level (e.g., 95% or 99%).

Question 3

In a Monte Carlo simulation for retirement income planning, increasing the number of simulations primarily improves which aspect of the analysis?

Accepted Answer

The statistical reliability and convergence of probability estimates

Answer

More simulation paths reduce sampling error and produce more stable probability-of-success estimates.

Question 4

A 68-year-old client holds a large-cap growth fund with an expense ratio of 1.45% and a comparable ETF with an expense ratio of 0.05%. Over 20 years at a 7% gross return, this 1.40% difference most directly affects:

Accepted Answer

The net compound return available to the client

Answer

Expense ratios directly reduce net compound returns; a 1.40% annual drag compounded over 20 years can consume a significant portion of terminal wealth.

Question 5

The concept of 'sequence of returns risk' is MOST relevant when:

Accepted Answer

A client begins taking systematic withdrawals from a portfolio experiencing early poor returns

Answer

Sequence risk is most damaging when withdrawals are taken during a period of poor early returns, permanently reducing the portfolio's recovery capacity.

RMA Practice Test

RMA Practice Test

RMA Investment Management & Asset Allocation 2