Practice Test Geeks(AAMS) Accredited Asset Management Specialist Practice Test
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Risk, Return & Investment Performance Flashcards

7 cards from real AAMS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. Which of the following best describes 'reinvestment risk'?

    Answer: The risk that interest payments will be reinvested at lower rates

    Reinvestment risk is the chance that future cash flows (coupons or dividends) must be reinvested at a lower rate than originally anticipated.

  2. An AAMS candidate reviews two portfolios: Portfolio X (return 12%, std dev 15%) and Portfolio Y (return 10%, std dev 9%). The risk-free rate is 3%. Which portfolio has the superior Sharpe ratio?

    Answer: Portfolio Y with 0.78

    Sharpe X = (12−3)/15 = 0.60; Sharpe Y = (10−3)/9 = 0.78; Portfolio Y offers better risk-adjusted returns.

  3. Convexity in fixed income investing is best described as:

    Answer: The curvature in the price-yield relationship that benefits bond prices

    Convexity captures the curvature of the price-yield curve, meaning bond prices rise more than duration predicts when rates fall and fall less when rates rise.

  4. An investor holds an undiversified portfolio of one stock. The relevant risk measure for this investor is:

    Answer: Total risk (standard deviation)

    For an undiversified investor, total risk (standard deviation) is the relevant measure because unsystematic risk has not been eliminated.

  5. Time-weighted return (TWR) is preferred over money-weighted return (MWR) for evaluating investment managers because:

    Answer: TWR eliminates the effect of client-controlled cash flows on performance

    TWR removes the impact of external cash flows (controlled by clients, not managers), providing a fair measure of manager skill.

  6. Which of the following scenarios illustrates 'sequence of returns risk'?

    Answer: A retiree earns 7% average annual return but experiences large losses early in retirement

    Sequence of returns risk occurs when poor early returns during withdrawals permanently reduce the portfolio's ability to recover, even if long-term averages are favorable.

  7. The Fama-French three-factor model expands on CAPM by adding which two additional factors?

    Answer: Size and value (book-to-market ratio)

    Fama and French added a size factor (SMB: small minus big) and a value factor (HML: high minus low book-to-market) to CAPM's single market factor.