CFE CFE Investment & Portfolio Management

Question 1

Which investment principle states that higher potential returns are associated with higher levels of risk?

Accepted Answer

Risk-return tradeoff

Answer

Diversification principle

Answer

Efficient market hypothesis

Answer

Capital preservation rule

Question 2

What does the Sharpe Ratio measure in portfolio management?

Accepted Answer

Risk-adjusted return relative to a risk-free rate

Answer

Total portfolio value

Answer

Portfolio liquidity

Answer

Dividend yield percentage

Question 3

Which type of risk can be eliminated through portfolio diversification?

Accepted Answer

Unsystematic (idiosyncratic) risk

Answer

Systematic risk

Answer

Market risk

Answer

Interest rate risk

Question 4

A financial examiner reviews a bank's investment portfolio and finds heavy concentration in a single sector. This primarily violates which best practice?

Accepted Answer

Diversification

Answer

Liquidity matching

Answer

Duration alignment

Answer

Yield maximization

Question 5

What is the primary purpose of an Investment Policy Statement (IPS) in a financial institution?

Accepted Answer

To document investment objectives, guidelines, and constraints

Answer

To maximize short-term trading profits

Answer

To report portfolio performance to regulators

Answer

To establish employee compensation benchmarks

Question 6

Which bond characteristic measures its sensitivity to changes in interest rates?

Accepted Answer

Duration

Answer

Coupon rate

Answer

Credit spread

Answer

Yield to maturity