Practice Test Geeks(CIMA) Certified Investment Management Analyst Practice Test
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Risk & Return Analysis Flashcards

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

Read the first 7 Risk & Return Analysis flashcards as text

  1. An investment has cash flows of $1,000 invested today and returns $1,210 after two years. What is the holding period return?

    Answer: 21%

    HPR = ($1,210 − $1,000) / $1,000 = $210 / $1,000 = 21%.

  2. Which of the following is the most appropriate risk measure for a well-diversified investor evaluating an individual security's contribution to portfolio risk?

    Answer: Beta

    Beta measures systematic risk, which is the only risk that matters for a fully diversified investor since unsystematic risk is eliminated.

  3. The risk-adjusted return measure that is most appropriate when comparing managers with different investment mandates (e.g., a bond fund vs. an equity fund) is:

    Answer: Sharpe ratio

    The Sharpe ratio uses total standard deviation, making it comparable across asset classes with different risk profiles.

  4. A negatively skewed return distribution means that:

    Answer: The left tail is longer, with more extreme negative returns than a normal distribution predicts

    Negative skewness indicates the tail extends to the left, meaning large negative returns occur more frequently than under a normal distribution.

  5. When computing the time-weighted rate of return (TWR), the purpose is to:

    Answer: Eliminate the distorting effect of external cash flows on portfolio return measurement

    TWR chains sub-period returns together, neutralizing the impact of client-driven cash flows and isolating manager performance.

  6. The Security Market Line (SML) plots expected return against beta. A stock plotting above the SML is considered:

    Answer: Undervalued, because it offers excess return for its systematic risk

    A stock above the SML has a positive alpha — it earns more than CAPM predicts, indicating undervaluation.

  7. An investor uses leverage to amplify portfolio returns. If the portfolio earns 12%, borrowing costs are 5%, and the leverage ratio is 2:1 (assets = 2× equity), the leveraged return on equity is approximately:

    Answer: 19%

    Leveraged return = portfolio return + (leverage − 1) × (portfolio return − borrowing cost) = 12% + 1 × (12% − 5%) = 19%.