WMS Portfolio Management & Strategy 2

Question 1

A client's portfolio has a beta of 1.4. If the market returns 8%, what is the expected portfolio return according to CAPM (assuming risk-free rate of 2%)?

Accepted Answer

11.2%

Answer

CAPM expected return = 2% + 1.4 × (8% - 2%) = 2% + 8.4% = 10.4%... wait: 2 + 1.4×6 = 2 + 8.4 = 10.4%. The answer is 10.4%.

Question 2

Which portfolio construction technique minimizes variance for a given level of expected return?

Accepted Answer

Mean-variance optimization

Answer

Mean-variance optimization, developed by Markowitz, identifies portfolios on the efficient frontier that minimize variance for each expected return level.

Question 3

A portfolio manager uses a 'core-satellite' approach. Which best describes the satellite portion?

Accepted Answer

Active or alternative holdings seeking alpha

Answer

The satellite portion consists of active, tactical, or alternative investments intended to generate alpha above the passive core.

Question 4

Tactical asset allocation (TAA) differs from strategic asset allocation (SAA) primarily because TAA:

Accepted Answer

Makes short-term deviations based on market outlook

Answer

TAA makes deliberate short-term deviations from the strategic targets to capitalize on perceived market opportunities or risks.

Question 5

An investor holds a portfolio with an annual standard deviation of 15% and expected return of 10%. The risk-free rate is 3%. What is the Sharpe ratio?

Accepted Answer

0.47

Answer

Sharpe ratio = (10% - 3%) / 15% = 7% / 15% ≈ 0.47.

(WMS) Wealth Management Specialist Certification Practice Test

(WMS) Wealth Management Specialist Certification Practice Test

WMS Portfolio Management & Strategy 2