WMS Investment Strategies and Portfolio Management 2

Question 1

Which portfolio rebalancing trigger method sets fixed percentage deviation thresholds before rebalancing occurs?

Accepted Answer

Threshold rebalancing

Answer

Threshold rebalancing triggers a rebalance when an asset class drifts beyond a specified percentage from its target allocation.

Question 2

A portfolio with a beta of 1.3 is expected to move how relative to the market during a 10% market decline?

Accepted Answer

Down 13%

Answer

Beta measures systematic risk; a beta of 1.3 means the portfolio is expected to move 1.3 times the market's movement, so a 10% decline becomes a 13% decline.

Question 3

What is the primary goal of a liability-driven investment (LDI) strategy?

Accepted Answer

Match or exceed the growth of future liabilities

Answer

LDI strategies are designed to match or fund future liabilities, commonly used by pension funds to align assets with their obligation streams.

Question 4

Which factor in the Fama-French Three-Factor Model explains the return premium of small-cap stocks over large-cap stocks?

Accepted Answer

SMB (Small Minus Big)

Answer

The SMB factor captures the historical excess return of small-capitalization stocks over large-capitalization stocks.

Question 5

An investor sells a losing position to realize a tax loss and immediately purchases a substantially identical security. What IRS rule is violated?

Accepted Answer

Wash-sale rule

Answer

The wash-sale rule disallows a tax loss if a substantially identical security is purchased within 30 days before or after the sale.

(WMS) Wealth Management Specialist Certification Practice Test

(WMS) Wealth Management Specialist Certification Practice Test

WMS Investment Strategies and Portfolio Management 2