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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.

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  1. Which statement about tax considerations in portfolio management is most accurate?

    Answer: After-tax returns are more relevant than pre-tax returns for taxable accounts

    For taxable investors, after-tax returns determine actual wealth accumulation, so tax-efficient strategies are a critical part of portfolio construction.

  2. A foundation with a mandate to fund charitable grants indefinitely has which type of investment objective?

    Answer: Growth and income with a perpetual time horizon

    A perpetual institution must grow the portfolio to sustain distributions indefinitely, requiring a balance of growth and income over an unlimited time horizon.

  3. Which of the following is a consequence of excessive portfolio turnover?

    Answer: Increased transaction costs and potential tax drag

    High portfolio turnover generates transaction costs (commissions, bid-ask spreads) and may trigger taxable capital gains, both of which reduce net returns.

  4. The Sharpe ratio measures portfolio performance by comparing excess return to:

    Answer: The portfolio's total risk as measured by standard deviation

    The Sharpe ratio divides excess return (portfolio return minus risk-free rate) by the portfolio's standard deviation, rewarding efficiency in taking on total risk.

  5. A portfolio manager moves 15% of a balanced portfolio from equities to bonds because she believes a recession is imminent. This action is an example of:

    Answer: Tactical asset allocation

    Tactical asset allocation involves deliberately deviating from strategic target weights in the short term based on market or economic views.

  6. Which of the following statements about benchmarks in portfolio management is correct?

    Answer: A valid benchmark must be investable, measurable, and agreed upon in advance

    A valid benchmark must be specified in advance, investable, measurable, and reflective of the portfolio's investment universe and style.

  7. In a defined benefit pension plan, the portfolio manager's primary objective is to:

    Answer: Generate returns sufficient to meet future pension obligations to plan members

    A defined benefit plan must ensure assets are sufficient to cover promised future pension payments, making liability-matching the central objective.