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Portfolio Management Process Flashcards

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

Read the first 7 Portfolio Management Process flashcards as text

  1. A portfolio manager uses the capital market expectations to forecast asset class returns, risks, and correlations. This information is primarily used to:

    Answer: Determine optimal asset class weights in the portfolio

    Capital market expectations provide the forward-looking inputs needed to construct and optimize asset class weightings within a portfolio.

  2. Which risk measure quantifies the potential loss in a portfolio over a specific time period at a given confidence level?

    Answer: Value at Risk (VaR)

    Value at Risk (VaR) estimates the maximum expected loss over a defined period at a stated confidence level, such as 95% or 99%.

  3. An investor's 'ability to take risk' is most closely related to:

    Answer: Their financial capacity to absorb losses without jeopardizing goals

    Ability to take risk is an objective measure based on financial circumstances such as income stability, wealth, liabilities, and time horizon.

  4. Which of the following scenarios would most likely trigger a formal review and update of a client's IPS?

    Answer: A client getting married and having children

    Major life events such as marriage or having children significantly change a client's financial situation, goals, and risk profile, requiring an IPS update.

  5. In the top-down approach to portfolio construction, the first decision made is:

    Answer: Determining the overall asset class mix

    The top-down approach begins with macroeconomic analysis to determine asset allocation, then moves to sector selection, and finally individual security selection.

  6. Diversification reduces portfolio risk primarily by combining assets that have:

    Answer: Low or negative correlations with each other

    Assets with low or negative correlations do not move together, so losses in one may be offset by gains in another, reducing overall portfolio volatility.

  7. A portfolio's actual return of 12% compared to its benchmark return of 10% reflects:

    Answer: Positive alpha

    Outperforming the benchmark by 2% represents positive alpha, indicating value added by the portfolio manager's decisions.