RMA Investment Management & Asset Allocation 3

Question 1

A client in her early 70s wants to hold 100% bonds for safety. Which concept BEST explains why this extreme conservative allocation could actually increase her retirement risk?

Accepted Answer

Inflation risk eroding the purchasing power of fixed income returns over a 20+ year horizon

Answer

A 100% bond portfolio is highly vulnerable to inflation risk, as fixed income returns may not keep pace with rising prices over a long retirement horizon.

Question 2

The 'bucket strategy' for retirement income management typically divides assets into which groupings?

Accepted Answer

Short-term liquidity, intermediate growth, and long-term growth buckets

Answer

The bucket strategy separates assets into a near-term liquidity bucket, a medium-term buffer, and a long-term growth bucket aligned with different time horizons.

Question 3

Which of the following BEST describes a 'liability-matching' approach to retirement portfolio construction?

Accepted Answer

Structuring assets to fund specific anticipated future cash flows

Answer

Liability-matching (or liability-driven investing) aligns portfolio assets with specific projected future liabilities, such as retirement income needs.

Question 4

A client's portfolio has a beta of 1.3. During a year when the market returned -10%, what approximate return would the portfolio be expected to show based solely on beta?

Accepted Answer

-13.0%

Answer

Beta of 1.3 means the portfolio is expected to move 1.3 times the market; -10% × 1.3 = -13% expected portfolio return.

Question 5

In the context of retirement asset allocation, 'human capital' is BEST defined as:

Accepted Answer

The present value of a client's future earned income from employment

Answer

Human capital represents the present value of future wages and is considered alongside financial capital when determining an appropriate overall asset allocation.

RMA Practice Test

RMA Practice Test

RMA Investment Management & Asset Allocation 3