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
Which of the following best illustrates a 'time horizon' constraint in a portfolio?
Answer: A pension fund that must pay retirees monthly starting in 5 years
A time horizon constraint reflects when the client needs the funds, directly affecting how much risk and illiquidity can be accepted.
The efficient frontier in portfolio theory represents portfolios that:
Answer: Offer the maximum expected return for each level of risk
The efficient frontier plots portfolios that achieve the highest possible return for a given level of risk, representing optimal diversification.
A client instructs their portfolio manager not to invest more than 10% of the portfolio in any single issuer. This is an example of which type of constraint?
Answer: Concentration limit / unique circumstance
A concentration limit set by the client to cap exposure to any single issuer is a unique circumstance constraint documented in the IPS.
Which performance measurement approach calculates returns that are unaffected by the timing of client cash flows?
Answer: Time-weighted rate of return
The time-weighted rate of return eliminates the impact of external cash flows, making it the standard for evaluating portfolio manager skill.
A manager who consistently takes on more systematic risk than the benchmark to generate higher returns is said to be generating returns through:
Answer: Beta exposure
Returns driven by higher exposure to systematic market risk (beta) reflect risk-taking rather than manager skill (alpha).
When comparing two portfolios with identical returns, a risk-averse investor would prefer the one with:
Answer: Lower standard deviation
A risk-averse investor prefers to achieve the same return with less volatility, meaning the portfolio with lower standard deviation is preferred.
In the context of portfolio monitoring, 'rebalancing bands' (also called tolerance bands) are used to:
Answer: Define how far an asset weight can drift before triggering rebalancing
Rebalancing bands specify acceptable drift ranges around target weights, triggering rebalancing only when a threshold is breached to balance discipline and transaction costs.