CH 9 Portfolio Management Questions

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Level I of the CFA® 2022 Exam
Questions - Portfolio Management
Offered by AnalystPrep
Last Updated: Nov 16, 2021
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Table of Contents
48 - Portfolio Management: An Overview 3

49 - Portfolio Risk & Return: Part I 11
50 - Portfolio Risk & Return: Part II 26
51 - Basics of Portfolio Planning & Construction 36
52 - The Behavioral Biases of Individuals 44
53 - Introduction to Risk Management 45
54 - Technical Analysis 53
55 - Fintech in Investment Management 62
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© 2014-2021 AnalystPrep.
Reading 48: Portfolio Management: An Overview
Q.123 Which of the following statements is least likely accurate regarding a defined contribution
plan?
A. Individual accounts are set up for participants and benefits are based on the amounts
credited to these accounts.
B. Future benefits to the account are guaranteed.
C. Future benefits fluctuate based on investment earnings.
Q.124 Which of the following is the best definition of mutual funds?
A. Funds from many individual investors that are aggregated for the purposes of investment.
B. A type of professionally managed investment fund that pools money from many investors
to purchase securities.
C. A limited partnership of investors that uses high-risk methods, such as investing with
borrowed money, in hopes to realize large capital gains.
Q.757 T he standard deviation of return of an equally weighted investment portfolio in various

securities is most likely :
A. More than the average of the standard deviation of the individual securities.
B. Equal to the average of the standard deviation of the individual securities.
C. Less than the average of the standard deviation of the individual securities.
Q.759 Which of the following institutional investors are the major participant in the investment
market in the countries that are part of the Organization for Economic Co-operation and
Development (OECD) as outlined in the OECD report: "Recent T rends in Institutional Investor
Statistics" (2008)?"
A. Insurance companies
B. Investment funds
C. Pension funds
3
Q.760 Which of the following statements is most likely accurate?
A. Investment companies that manage mutual funds are collective financial institutions
Investors pool their capital to have it invested by professional managers with high liquidity
needs to meet redemption requirements.
B. Insurance companies need to invest the premiums received for the policies written to
allow them to pay bonuses to their investors and meet operational expenses.
C. Banks need to invest their excess reserves (i.e., when deposits have not been used to
make loans) more in equities and other relatively less liquid assets to earn a return on its
services that exceeds the rate of interest it pays on its deposits.
Q.761 Which of the following analyses is best suited to form a fully knowledgeable portfolio in
establishing and managing a client's investment portfolio?
A. T he top-down analysis
B. T he bottom-up analysis
C. A combination of option A) and option B)
Q.762 Which of the following is least likely a characteristic of open-ended mutual funds?
A. Open-end funds accept new investment money and issue additional shares to existing or
new investors. T herefore, the number of outstanding shares changes after every new
investment.
B. In open-end funds, new shares are created and sold at a premium or a discount to net
assets values depending on the demand for the shares.
C. An open-end structure makes it easy to grow in size but creates pressure on the portfolio
manager to manage the cash inflows and outflows.
Q.763 Which of the following best describes all of the major types of mutual funds differentiated by
the asset type they invest in?
A. Money market funds and stock mutual funds
B. Money market funds, stock mutual funds, and hybrid or balanced funds
C. Money market funds, stock mutual funds, bond mutual funds and hybrid or balanced funds
4
Q.764 Which of the following is considered as the major difference between a bond mutual fund and a
money market fund?
A. T he nature of the assets they invest in
B. T he maturity of the underlying assets
C. T he taxability of these two funds
Q.765 Which of the following is least likely accurate in the context of actively managed stock mutual
funds?
A. Higher fees are charged for actively managed funds (reflecting its goal to outperform the
index).
B. Tax implications are lower in actively managed funds than in index funds.
C. More research is conducted in actively managed funds to select the best securities, and
they are traded more often than index funds
Q.766 In which of the following investment products are creation units issued?
A. Open-end mutual funds
B. Closed-end mutual funds
C. Exchange-traded funds (ET F)
Q.767 Which of the following is least likely a characteristic of hedge funds?
A. Hedge funds usually have restricted liquidity.
B. Management fees are not only a fixed percentage of the funds under management, but
managers also collect fees based on performance.
C. Hedge funds are readily available to all investors.
5
Q.768 Which of the following is least likely a similarity between buyout funds and venture capital
funds?
A. T hey both seek to only acquire a minority stake in the firms they invest in.
B. T hey both make investments with finite investment horizons (usually 3 to 5 years).
C. T hey both take control of the board of the companies in which they invest.
Q.1260 T he process of evaluating individual investments in terms of their risk and return
contributions to the portfolio is referred to as:
A. passive portfolio analysis.
B. portfolio rebalancing.
C. portfolio perspective.
Q.1261 T he metric for measuring the diversification benefit of adding an investment into a portfolio
is known as the:
A. diversification ratio.
B. standard deviation.
C. Beta.
Q.1262 T he University of Bursa wants to establish a dedicated fund to provide financial support for
the ongoing expansion of its artificial intelligence research center building. Which of the following is
the most appropriate fund for the project?
A. Foundation fund
B. Endowment fund
C. Hedge fund
6
Q.1263 A society of doctors wants to establish a fund for the support of new doctors to carry out a
research on Ebola. Suggest an appropriate fund for this purpose.
A. Foundation fund
B. Endowment fund
C. Open-end fund
Q.1265 T he government of Canada and the government of T urkey want to establish a fund that will
invest in small-medium enterprises in T urkey. Which of the following funds will they choose?
A. Sovereign Fund
B. Mutual Fund
C. Endowment Fund
Q.1266 Which of the following have the highest risk tolerance and lowest liquidity needs?
A. Insurance companies
B. Endowment funds
C. Banks
Q.1267 Liquidity needs of defined benefit plans:
A. are low.
B. are high.
C. can not be ascertained.
7
Q.1268 KDM Inc. has a pension plan for its employees where it contributes a certain amount to the
plan without any certainty about the future value of the plan. T his fund is most likely a/an:
A. defined benefit plan.
B. defined contribution plan.
C. insurance fund.
Q.1269 Which of the following parties assumes the investment risk of a defined benefit plan?
A. T he employees
B. T he employer
C. T he investment managers
Q.1270 Which of the following portfolio management steps requires a detailed investment policy
statement?
A. Execution step
B. Planning step
C. Feedback step
Q.1271 Roy Smith wants to invest in equities of emerging markets to buy a new car with the
returns. Which of the following will provide these details about Smith?
A. T he investment policy statement
B. T he prospectus of the investment fund
C. T he brochure of the investment company
8
Q.1272 Gordon Blue is a portfolio manager who analyzes the macro indicators of a country before
selecting the assets to invest in within that particular country. What is Gordon's style?
A. Bottom-up
B. Macro analysis
C. Top-down
Q.1274 Shares of a mutual fund are valued on which of the following bases?
A. T he opening price of the fund's shares
B. T he net asset value of the fund's shares
C. T he present value of future cash-flows
Q.1275 MZJ Income Fund is a mutual fund that does not issue new shares, and its shares can only be
bought or sold like equity on the over-the-counter (OT C) market. Identify this type of mutual fund.
A. Closed-end fund
B. Open-end fund
C. Exchange-traded fund
Q.1276 Identify the type of funds that invests in US T reasury bills.
A. Money market funds
B. Bond mutual fund
C. Open-end fund
Q.1277 Which of the following funds are passively managed?
A. Stock mutual funds
B. Money market funds
C. Index funds
9
Q.1279 Which of the following fund is formed to invest in IPOs and initial stages of new companies
and start-ups?
A. Venture capital fund
B. Private equity fund
C. Index fund
Q.2820 Which of the following investors has a portfolio perspective in his investment strategy?
I) Investor A has been investing in the shares of Max Mart for the last ten years. He always earns
above-market returns because he regularly evaluates the risk and return of his single asset portfolio.
II) Investor B holds a Ph.D. in Economics and. Due to his sound knowledge of different sectors of the
economy, he keeps shares from different firms from different sectors. He evaluates the combined
risks and returns of these assets in a portfolio.
III) Investor C is a new investor who recently started investing in some large-cap stocks. His
investment strategy involves evaluating the risks and returns of his portfolio shares in isolation.
A. Investor A only
B. Investor B only
C. Investors B & C
Q.2821 T he portfolio of a pension plan consists of 6 stocks whose risk and return profiles are
provided in the following table. Suppose that the equally weighted standard deviation of the portfolio
is 13%, then which of the following stocks provides the highest diversification ratio?
Stock Expected Return Standard Deviation

Alpha Co. 16% 27%
Gama Corp. 17% 17%
Hero Corp. 41% 33%
A. Alpha Co.
B. Gama Corp.
C. Hero Corp.
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Q.2822 Jasmine Aldo is a freelance fund manager based in Seattle who was recently asked by a
university to establish a fund that supports the ongoing research on polio disease in Africa. Which of
the following is the most appropriate type of fund for the stated purpose?
A. University endowment fund
B. Hedge fund
C. Foundation fund
Q.2823 Which of the following is least likely true regarding insurance companies?
A. Insurance companies invest customer claims with the objective of funding customer
premiums.
B. Property insurance companies have short-term investment horizons.
C. Insurance companies have high liquidity needs as compared to endowment funds.
Q.2824 Which of the following is most likely a type of investor with a high-risk tolerance and low
liquidity needs?
A. Banks
B. Defined benefit pension plans
C. Insurance companies
Q.2825 Which of the following is the most appropriate income need of a bank as an investor?
A. Pay interests
B. Finance daily expenses
C. Pay pension benefits to its employees
11
Q.2826 Wrap n Roll is a food chain based in Nevada. T he company is respected in its industry for the
treatment of its employees. Wrap n Roll has decided to invest in a pension plan where employee
payouts are computed using a formula that considers factors such as length of employment and salary
history. Considering Wrap n Roll's requirement, which of the following is the most appropriate
pension plan?
A. Defined contribution plan
B. Defined benefit plans
C. Fixed asset pension plan
Q.2827 Which of the following statements regarding the Portfolio Management Process are
accurate?
I. T he planning step begins with the formation of an Investment Policy Statement (IPS).
II. T he execution step includes a top-down analysis of assets.
III. T he feedback step deals with the bottom-up analysis.
A. Statements I & II only
B. Statements I & III only
C. Statements I, II & III.
Q.2828 Determine the most appropriate Net Asset Value (NAV) formula used by the mutual fund
industry to value mutual funds.
A. Present value of fund's asset divided by the number of fund's shares
B. Total value of funds assets divided by the number of fund's shares
C. Net asset value of funds assets divided by the number of fund's shares
Q.2829 Which of the following mutual funds gives an investor the option to invest additional funds
without additional fees?
A. Closed-end front-load fund
B. Open-end front-load fund
C. Open-end no-load fund
12
Q.2831 Which type of mutual fund is most likely exempt from government taxes?
A. Municipal bond fund
B. Euro bond fund
C. Global bond fund
Q.2832 Escobar Slim recently inherited $40 million from his father's coal mine business. Slim does
not have a sound knowledge of the stock market, but he wants to invest in a passively managed
mutual fund that provides as much return as the Nasdaq Composite. Which of the following is the
most appropriate mutual fund for Escobar Slim?
A. Stock mutual fund
B. Index fund
C. Money market fund
Q.2833 Which of the following is/are the most likely correct statements regarding similarities and
differences between exchange-traded funds and closed-end funds?
I. Both types of funds are passively managed to match a particular index.
II. In both types of funds, the market price of shares and the net asset value (NAV) can differ
significantly.
III. Both types of funds can be sold and purchased on the open market.
A. III only
B. I & III only
C. I & II only
Q.2834 Which of the following hedge fund strategies invest in the stocks of those companies which
are likely to participate in mergers and acquisitions?
A. Convertible bond arbitrage fund
B. Event-driven fund
C. Buyout funds
13
Reading 49: Portfolio Risk & Return: Part I
Q.128 An asset manager's portfolio had the following annual rates of return:
2012: +8%
2013: +6%
2014: -2%
What is the holding period return for this portfolio?
A. 3.91%
B. 4%
C. 12.19%
Q.129 Stock ABC's expected return is 7% with a standard deviation of 14%. Stock XYZ's expected
return is 11% with a standard deviation of 23%.
Given that the correlation coefficient between ABC and XYZ is 0.4 and that you want to invest 35%
of your money in stock ABC and 65% in stock XYZ, the standard deviation of your portfolio will be
closest to:
A. 16.87%.
B. 17.50%.
C. 8.43%.
Q.130 Accord Corp has a beta of 1.2. If the market premium is 8% and the risk-free rate is 2%, then
Accord's expected return is closest to:
A. 7.2%.
B. 9.2%.
C. 11.6%.
14
Q.131 T he variance of the market is 5% and the market risk premium is 10%. T he risk-free rate is
3%. If the covariance between Allison Company and the market is 6%, Allison's required return is
closest to:
A. 3.7%.
B. 14%.
C. 15%.
Q.132 A portfolio is composed of 60% equities and 40% bonds. T he variance of equities is 320, the
variance of bonds is 110, and the covariance is 90. T he portfolio's variance is closest to:
A. 154.4.
B. 176.
C. 279.2.
Q.133 Investor A has a lower risk aversion than Investor B, and Investor C has a lower risk
tolerance than Investor B. Which investor's optimal portfolio will most likely have the highest
expected return on the capital allocation line?
A. Investor A's optimal portfolio
B. Investor B's optimal portfolio
C. Investor C's optimal portfolio
Q.134 Company ABC is expected to return 15% per year to its investors, the market expected
return is 8% and the risk-free rate is 3.5%. What is ABC's stock beta?
A. 1.4375
B. 1.8750
C. 2.5556
15
Q.219 You expect XYZ's stock to have a price of USD 142 at the end of the year. Also, you expect to
receive a dividend of USD 4. How much will you pay for a stock today in order to realize a return on
investment of 11%?
A. USD 144.60
B. USD 122.80
C. USD 131.50
Q.221 An investor buys 4 shares of UUA stock at $44. During the year, the company pays a $3
special dividend per share. T hen, at the end of the first year, the investor buys 5 more shares at $46.
Lastly, at the end of the second year, he sold all the shares for $57. If there was no dividend during
the second year, what is the time-weighted rate of return of this investment?
A. 11.4%
B. 15.2%
C. 17.4%
Q.404 An 8% annual-coupon bond was purchased for $1,000. Exactly one year later, the bond was
sold for $975. What is the investor's holding period yield if the face value of the bond is $ 1,000?
A. -2.5%
B. 5.5%
C. 8%
16
Q.770 Rick Hassler earned the following annual rates of return by holding shares of XYZ Inc. for a
period of five years:
Year Return (%)

2011 13
2012 19
2013 -11
2014 25
2015 30
T he share's holding period return over the five-year period is closest to:
A. 94%.
B. 21%.
C. 14%.
Q.771 Alan West, a portfolio manager, created the following portfolio:
Security Security Weight (%) Expected Standard deviation(%)

A 20 4
B 80 10
If the correlation of returns between the two securities is 0.60, then the expected standard
deviation of the portfolio is closest to:
A. 9.50%.
B. 8.10%.
C. 8.50%.
17
Q.772 Raul Perez, a portfolio manager, created the following portfolio:

A 40 7
B 60 12
If the covariance of returns between the two securities is -0.004, then the expected standard
deviation of the portfolio would be :
A. 6.36%.
B. 6.56%.
C. 6.10%.
Q.773 In which of the following scenario would the inclusion of new assets be beneficial to the
portfolio?
A. [E(R new ) - Rf]/S.Dnew > [E(R p) - Rf]*rnew,p/S.D.,p

where S.D is the Standard Deviation and
r is the correlation coefficient
B. [E(R new ) - Rf]/S.Dnew < [E(R p) - Rf]*rnew,p/S.D.,p

C. [E(R new ) - Rf]/S.Dnew = [E(R p) - Rf]*rnew,p/S.D.,p

18
Q.774 T ina Fer, a portfolio manager, created the following portfolio:

A 10 6
B 90 15
If the standard deviation of the portfolio is 14.1%, then the covariance between the two securities is
closest to:
A. 0.0008.
B. 0.0009.
C. 0.0090.
Q.775 Doug Smith, a portfolio manager, created the following portfolio:
Security Expected Return (%) Expected Standard Deviation(%)

A 18 12
B 15 10
If the portfolio of the two securities has an expected return of 16%, the proportion invested in
Security A is closest to:
A. 33%.
B. 67%.
C. 133%.
19
Q.776 Carla Mayes, a portfolio manager, created the following portfolio:

A 5 8
B 10 14
If the correlation of returns between the two securities is -0.20, the expected standard deviation of a
portfolio invested 75% in Security A and 25% in Security B is closest to:
A. 5.31%.
B. 6.81%.
C. 6.31%.
Q.777 Kate Reiners, a portfolio manager, created the following portfolio:

A 11 9
B 18 16
If the two securities are uncorrelated, the expected standard deviation of this equal-weighted
portfolio is closest to:
A. 9.18%.
B. 9.81%.
C. 8.91%.
Q.778 Which of the following statements is most accurate if two securities are perfectly correlated?
A. Risk-return opportunity set will be represented by a straight line connecting these two
securities.
B. Risk-return opportunity set will be represented by a curve bulging on the left.
C. Risk-return opportunity set will be represented by a curve bulging on the right.
20
Q.779 Which of the following curve is referred to as the Markowitz efficient frontier?
A. T he curve that lies below and to the left of the global minimum-variance portfolio.
B. T he curve that lies above and to the right of the global minimum-variance portfolio.
C. T he curve that lies above and to the left of the global minimum-variance portfolio.
Q.780 Which of the following statements is most accurate in the context of the minimum-variance
frontier?
A. A risk-averse investor will always choose to invest in a portfolio that lies on the right to
the minimum-variance frontier.
B. A risk-averse investor will always choose to invest in a portfolio that lies on the minimum-
variance frontier.
C. Neither of the above.
Q.1299 Calculate the standard deviation of two equally weighted risky assets in a portfolio if the
standard deviations of the two assets are 12% and 15% and the correlation between the two assets is
0.5.
A. 11.71%
B. 1.37%
C. 13.37%
Q.1300 What does the utility function represent?
A. Investors preference in terms of risk and return
B. Different combinations of risk and return
C. Minimum variance portfolios
21
Q.1301 Which of the following indifference curves will a risk-averse investor have?
A. An upward-sloping curve
B. A downward-sloping curve
C. A downward straight line
Q.1302 Which of the following statements is most accurate about correlations?
A. T he higher the correlation between assets, the higher the diversification benefit is.
B. T he lower the correlation between assets, the lower the diversification benefit is.
C. T he higher the correlation between assets, the lower the diversification benefit is.
Q.1303 A stock returned 2%, 9%, -3%, 13%, and x over five years. If the arithmetic mean return
over the five years is 2.8%, then the fifth year return is closest to:
A. 10%.
B. 21%.
C. -7%.
Q.1304 Which of the following is least likely correct about the coefficient of correlation?
A. A correlation of zero means there is no linear relationship between two stocks.
B. A correlation of -1 means the two stock returns are always proportional in opposite
directions.
C. A correlation of 3 means the two stock returns are always proportional in the same
direction.
22
Q.1305 Calculate the geometric mean of a fund that returned -22%, 18%, 9%, 6% and -2% in 5 years.
A. 0.83%
B. 6%
C. 18%
Q.1306 Peter Pamco, a fund manager, constructs a portfolio consisting of four assets that pay
returns of 6%, 13%, 15%, and 7%. If the weights of stocks are 20%, 30%, 40%, and 10%,
respectively, then the expected return of the portfolio is closest to:
A. 13.2%.
B. 11.8%.
C. 21%.
Q.1309 T he line that represents the combination of an optimal risky portfolio and a risk-free asset is
known as the:
A. indifference curve.
B. capital allocation line.
C. efficient frontier.
Q.1311 A portfolio that has the least risk (smallest standard deviation) on the efficient frontier is
called the:
A. global minimum variance portfolio.
B. least risky portfolio.
C. most efficient portfolio.
23
Q.1312 Which of the following statement is least likely to be true regarding the efficient frontier?
A. A risk-averse investor will only choose portfolios along the efficient frontier (in the
absence of a risk-free asset).
B. Portfolios that deliver the greatest return on each level of standard deviation make up the
efficient frontier.
C. T he graphic that shows the efficient frontier has the variance on its Y-axis.
Q.1313 Which stock will a risk-seeking investor most likely pick if Stock A pays a 5% return with a
2% standard deviation and Stock B pays a 7% return with a 6% standard deviation?
A. Stock A
B. Stock B
C. Indifference between A and B
Q.1315 Which of the following statements is most accurate regarding a negative covariance between
two assets?
T he returns of two assets are:
A. moving together in negative directions.
B. moving in opposite directions.
C. uncorrelated.
Q.1316 Which of the following has a greater return and a higher risk?
A. T-Bills
B. Large-cap stocks
C. Small-cap stocks
24
Q.1317 An investment grows in value from $1000 to $1352. However, the investor had invested
$500 of his money and the remaining $500 was borrowed money. Assuming no interest, the return on
the leveraged position is closest to:
A. 70%.
B. 35%.
C. 105%.
Q.1318 A portfolio return which is calculated after deducting fees from its return is called:
A. Gross return.
B. Net return.
C. Geometric return.
Q.1319 A 3-year fund returned -3%, 6% and 8% respectively. T he geometric mean for this fund is
closest to:
A. 3.55%.
B. 4%.
C. 2.78%.
Q.1320 An investor holds a stock that has been quite volatile over the past few years. T he geometric
mean return value will most likely be:
A. higher than the arithmetic mean return value.
B. lower than the arithmetic mean return value.
C. the same as the arithmetic mean return value.
25
Q.1321 An investor purchased a share for $65 which paid a dividend of $3 and was sold for $72 at the
end of the period. T he holding period return is closest to:
A. 12%.
B. 13.33%.
C. 15.38%.
Q.1322 Which of the following is used to measure the return on an investment over a specific
period?
A. Holding period return
B. Geometric mean
C. Arithmetic mean
Q.1324 Janet Taylor purchased a single share of AMC Corp for $30 at t=0. She bought an additional
unit for $42 at t=1. If at t=2 she sold both shares for $55 each, the money-weighted return of the
investment is closest to:
A. 33.88%.
B. 31.78%.
C. 29.45%.
Q.1325 What is the exact real return of an investment which earned a yearly nominal return of 11%
if the inflation during the same period was 4%?
A. 7%
B. 9.34%
C. 6.73%
26
Q.1326 Calvin Hair purchased a share of Superior Car Rental Company for $85 at t=0. He bought an
additional unit for $87 at t=1. He then received a dividend of $4 during the year on both shares. If at
the end of t=2 he sold both shares at $90, the money-weighted return is closest to:
A. 6.29%.
B. 8.2%.
C. 14%.
variance of the two assets is 0.0121 and 0.0484 and the correlation is 1.
A. 0.237
B. 0.165
C. 0.07
standard deviations of the two assets are 9% and 14% and the correlation is 0.
A. 0.083
B. 0.168
C. 0.239
Q.2670 Jane Sonam is a value investor who recently started investing in tech companies. As her
financial adviser, you are given a task to calculate the money-weighted return of her investments in
Solar Inc. In the beginning, Jane Sonam purchases 10 shares of Solar Inc. at $110. One year later, she
purchased an additional 5 shares at $120. Assuming that the stock paid a dividend of $2 per share each
year, calculate the money-weighted return if she sold all 15 shares for $122 at the end of the second
year.
A. 6.31%
B. 10.58
C. 12.35%
27
Q.2672 A small investment fund presents its monthly returns in both the Money-Weighted Rate of
Return (MWRR) and the T ime-Weighted Rate of Return (T WRR). Recently, an institutional investor
has withdrawn a large sum of money from the fund. Which of the following measures of portfolio
return is/are most affected?
A. T ime-Weighted Rate of Return (T WRR)
B. Money-Weighted Rate of Return (MWRR)
C. Both at the same rate
Q.2673 A university endowment fund invests in emerging market economies to fund its research and
development projects. T he value of the fund's assets is provided in the following table. Assuming all
cash flows occur at the beginning of the year, the time-weighted return of the fund is closest to:
Year 1 Year 2 Year 3 Year 4

Beginning Value $7,945,600 $10,750,200 $12,000,000 $9,995,000
Additional Inflow (Outflow) $1,200,000 $850,000 ($1,750,000) $1,100,000
Ending Market Value $10,750,200 $12,000,000 $9,995,000 $10,090,000
A. 7.7%.
B. 5.4%.
C. 1.9%.
Q.2674 An investor purchased 1,000 shares of Indian T ransport Co. for INR 33.23 per share and
received a dividend of INR 0.41 per share. Assuming that the investor sold the shares for INR 33.92,
calculate the Holding Period Return (HPR) of the investment.
A. 1.04%
B. 3.31%
C. 10.33%
28
Q.2676 What is the sale price of a bond that paid a coupon of $20 and was purchased for $890,
assuming that the holding period return of the bond is 4.49%?
A. $1,000
B. $910
C. $930
Q.2680 A small investor purchased 100 shares of stock HHL at $10 per share on January 4th, 2014.
A year later, he purchased an additional 200 shares at $15 per share. If the investor sold all 300
shares at $17 per share on January 4th, 2016, then the annualized time-weighted return of the
investment is closest to:
A. 27.5%.
B. 30.38%.
C. 21.11%.
Q.2835 For the past 5 year, an investor has had the following returns: 6%, 2.5%, -3%, 8%, and -6%.
Which of the following statements is most likely accurate?
A. T he geometric mean return is equal to the arithmetic return.
B. T he geometric mean return is smaller than the arithmetic return.
C. T he geometric mean return is greater than the arithmetic return.
29
Q.2836 TexCo is a textile firm in Shanghai. T he stock of Tex Co has been closing higher every year
for the past 7 years. Using the stock data provided in the following table, calculate the Holding Period
Return on TexCo's stock for the year 2012.
Year Closing Price Dividend

2009 $23.78 $1.10
2010 $25.25 $1.80
2011 $28.21 $2.00
2012 $30.50 $2.50
2013 $31.50 $1.50
2014 $32.00 $3.00
2015 $34.00 $2.00
A. 19.64%
B. 18.85%
C. 16.98%
Q.2837 Calculate the money-weighted rate of return of an investor if he purchased one share at the
(end of each year) of XRW (data provided in the following table) for the last 5 years starting from
Year 0 and sold all 5 shares at the end of the 5th year.
Assume that at the end of each year in the holding period, XRW stock paid a dividend of $1 per share.
Year Purchasing Price

0 $10.00
1 $8.95
2 $7.45
3 $8.50
4 $9.85
5 $10.15
A. 13.71%
B. 14.68%
C. 11.37%
30
Q.2838 Which of the following return measures will most likely be the lowest?
A. Gross return
B. Net return
C. Pre-tax nominal return
Q.2839 An investor is interested in knowing the real return his portfolio has earned over a certain
period. Assuming that the nominal return of his portfolio is 18%, the CPI is 6%, and the tax rate is
38.9%, then the real return of the portfolio is closest to:
A. 19.08%
B. 11.32%
C. 6.92%
Q.2840 Which of the following statements is most appropriate?
A. Returns on large-cap stocks are negatively correlated with the standard deviation of
returns.
B. Large-cap stocks have a greater standard deviation of returns than to small-cap stocks due
to longer maturities.
C. T heoretically, small-cap stocks should post greater returns than large-cap stocks.
Q.2841 Which of the following is least likely an interpretation of the correlation coefficient?
A. A correlation coefficient of +1 means that the mean returns of two assets move
proportionately in the same direction.
B. A correlation coefficient of -1 means that the mean returns of two assets move
proportionately in a negative direction.
C. A correlation coefficient of -1 means that the mean returns of two assets move
proportionately in opposite directions.
31
Q.2842 Determine the correlation between the shares of Glam Corp. and Duncan Inc. if the
covariance of the assets is 0.04, the standard deviation of Glam Corp. is 32% and the standard
deviation of Duncan Inc. is 41%.
A. 0.305
B. 0.005
C. 0.11
Q.2843 A junior fund manager at Dapper Assets Management is constructing a portfolio consisting of
two large-cap stocks that trade on the London stock exchange. Using the data given in the following
table, calculate the standard deviation of stock A.
Year Stock A Return Stock B Return

1 17% 45%
2 21% 20%
3 -8% -2%
4 -1% 2%
5 4% -19%
6 19% 2%
7 -7% 13%
A. 12.46%
B. 1.33%
C. 7.56%
32
Q.2844 A junior fund manager at Dapper Assets Management is constructing a portfolio consisting of
two large-cap stocks that trade on the London stock exchange. In a meeting with the investment
committee, the manager was asked to present the covariance of both stocks. Using the data given in
the following table, calculate the covariance if the population mean is unknown.
Year Stock A Return Stock B Return

1 17% 45%
2 21% 20%
3 -8% -2%
4 -1% 2%
5 4% -19%
6 19% 2%
7 -7% 13%
A. 0.0144
B. 0.0113
C. 0.0091
Q.2845 A fund manager is constructing a portfolio consisting of two stocks. Which of the following
equations can the manager use to calculate the correlation coefficient if the covariance is 0.0168,
the standards deviation of stock A is 0.125 and the standard deviation of stock B is 0.2?
A. 0.0168/(0.125*0.2)2
B. 0.0168/(0.125*0.2)
C. 0.0168/(0.1252*0.22)
33
Q.2846 Hakim Ahmed has recently joined Lampard Investment Inc. He was given the data related to
the assets of a portfolio provided in the following table. If the weight of Asset X is 35% and the
weight of Asset Z is 65%, then the variance of the portfolio is closest to:
Variance Asset X 0.1225

Variance Asset Z 0.3721
Covariance 0.19
A. 0.3712.
B. 0.1156.
C. 0.2587.
Q.2847 Hakim Ahmed has recently joined Lampard Investment Inc. He has been given data related to
the assets of a client's portfolio provided in the following table:
Variance Asset X 0.1225

Variance Asset Z 0.3721
Covariance 0.19
If the weight of Asset X is 35% and the weight of Asset Z is 65%, then the correlation coefficient of
the portfolio is closest to:
A. 0.8899.
B. 0.0469.
C. 4.168.
Q.2848 Which of the following is the most appropriate formula for the variance of a portfolio of two
assets if the assets are perfectly correlated?
A. Portfolio Variance = (Weight of Asset 12 + Weight of Asset 22) * Std. Dev. Asset 1 or 2
B. Portfolio Variance = (Weight of Asset 1 * Std. Dev. Asset 1 + Weight of Asset 2 * Std. Dev.
Asset 2)2
C. Portfolio Variance = (Weight of Asset 12 * Std. Dev. Asset 12) + (Weight of Asset 22 * Std.
Dev. Asset 22)
34
Q.3415 Gilbert Collins, CFA, manages the pension fund of Lavida Inc. While Collins is responsible for
identifying investment opportunities, Lavida is solely responsible for the fund’s inflows and outflows
in the portfolio. T he most accurate method for measuring the returns generated by Collins would be
the:
A. T ime-weighted rate of return.
B. Money-weighted rate of return.
C. T ime-weighted rate of return or money-weighted rate of return.
Q.3494 An analyst is responsible for reviewing the in-house equity portfolio of Loise Corporation.
Exhibit 1 shows the outflows and inflows of the in-house portfolio.
Exhi bi t 1: In-House Portfol i o – Loi se Corporati on
Quarter 1 Quarter 2 Quarter 3 Quarter 4

Beginning Value $5,0000,000 $6,000,000 $5,500,000 $6,500,000
Beginning of Period
$800,000 ($600,000) $600,000 $200,000
Inflow (Outflow)
Amount Invested $5,800,000 $5,400,000 $6,100,000 $6,700,000
Ending Value $6,000,000 $5,500,000 $6,500,000 $7,000,000
T he time-weighted rate of return for the in-house portfolio is closest to:
A. 12%.
B. 15%.
C. 17%.
Q.3496 Which of the following best represent the set of circumstances which promote the money-
weighted rate of return as a suitable measure for a portfolio of assets?
T he money-weighted rate of return is suitable to measure portfolio returns for a person who has:
A. Full discretionary control over the timing and amount of withdrawals and additions to the
portfolio.
B. No discretionary control over the timing and amount of withdrawals and additions to the
portfolio.
C. Both of the above.
35
Q.3500 Xi Yang buys one share of a stock priced at $800. One month after, he again buys one share of
the same stock at $1,000. Worried that the market may experience a quick pullback, Yang sells each
of his shares for $800 at the end of the 2nd month. Given that the stock paid a dividend of $40.00 at
the end of the 1st month, then the time-weighted return of the investment is closest to:
A. 0%.
B. 1.98%.
C. 4%.
36
Reading 50: Portfolio Risk & Return: Part II
Q.135 JJK's stock price is $30 and, in one year, its price is expected to be $40. T he risk-free rate is
5% and the historical S&P return is 15%. If analysts say that the stock is fairly valued, then JJK's
beta is closest to:
A. 1.8887.
B. 2.
C. 2.833.
Q.136 Given the Markowitz Portfolio T heory, which of the following statements is least likely
accurate?
A. Investors seek to maximize their utility.
B. Investors measure risk in terms of an investment's variance or standard deviation.
C. Given the same level of expected return, an investor will choose the investment with the
highest amount of risk.
Q.137 Which of the following statements regarding the real risk-free rate of return is least likely
accurate?
A. T he real risk-free rate of return is the minimum an investor requires.
B. You don't need the inflation rate to calculate the real risk-free rate of return.
C. T he real risk-free rate of return does not take into account the capital market
environment.
Q.406 Portfolio A generates a 9% return with a 1.15 Sharpe ratio and portfolio B generates a 9%
return with a 1.05 Sharpe ratio. Which is the better portfolio?
A. Portfolio A
B. Portfolio B
C. You are indifferent to portfolio A or B
37
Q.409 Taking into account a 2% risk-free rate and using the Sharpe ratio, which of the following
portfolios has the best risk-adjusted performance?
Portfolio A: A mean return of 5% with a standard deviation of 3%.

Portfolio B: A mean return of 10% with a standard deviation of 18%.
Portfolio C: A mean return of 17% with a standard deviation of 16%.
A. Portfolio A
B. Portfolio B
C. Portfolio C
Q.781 Which of the following is referred to as the capital market line?
A. T he capital allocation line that considers only the risky portfolio as the optimal risky
portfolio.
B. T he capital allocation line that uses the market portfolio as the optimal risky portfolio.
C. T he capital allocation line that uses the risk-free portfolio as the optimal risky portfolio.
Q.782 Which of the following is not a characteristic of an active portfolio?
A. T he portfolio contains positive weighting for assets that are undervalued, or have a
chance of offering above-normal returns.
B. T he portfolio generally has high costs as a significant effort is made in valuing securities.
C. T he portfolio mostly replicates and tracks market indices, constructed on the basis of
market prices and market capitalizations.
Q.783 Which of the following situations is referred to as the leveraged position in the risky
portfolio?
A. When there is a positive amount invested in the risk-free asset and in the risky asset.
B. When there is no amount invested in the risk-free asset.
C. When there is a negative investment in the risk-free asset.
38
Q.784 T wo portfolios have the following characteristics:
Portfolio Return Beta

A 8% 0.7
B 7% 1.1
Given a market return of 10% and a risk-free rate of 4%, calculate Jensen's Alpha for both portfolios
and comment which portfolio has performed better.
A. -0.2% and -3.6% respectively

Portfolio A has performed better than Portfolio B.
B. -0.2% and -3.6% respectively

Portfolio B has performed better than Portfolio A.
C. 0.2% and 3.6% respectively

Portfolio B has performed better than Portfolio A.
Q.785 T he capital asset pricing model (CAPM) is used for the pricing of securities considering:
A. Non-systematic risk.
B. Systematic risk.
C. Total risk.
Q.786 Which of the following portfolio has a systematic risk equivalent to its total risk?
A. A diversified portfolio
B. An unachievable portfolio
C. A borrowing portfolio
Q.787 Which of the following is an example of systematic risk?
A. Regulatory changes
B. Credit crunches
C. Product recalls
39
Q.788 Which of the following portfolio performance evaluation measures provides the extent of the
performance of a particular portfolio?
A. Sharpe ratio
B. T reynor ratio
C. Jensen's alpha
Q.789 Which of the following portfolio performance evaluation measures is based on systematic
risk?
A. Sharpe ratio
B. T reynor ratio
C. M-Squared (M2)
Q.790 With respect to security selection using SML, a rational investor is more likely to invest in
points:
A. Directly lying on the SML.
B. Above the SML.
C. Below the SML.
Q.791 Which of the following is most likely the intercept of the security characteristics line (SCL)?
A. Jensen's alpha
B. Beta
C. M-Squared (M2)
40
Q.792 Which of the following securities has the highest expected return calculated using a capital
asset pricing model if the market risk premium is 8%?
Security Beta
A 0.75
B 0.12
C 1.30
D 1.70
A. Security B
B. Security D
C. It depends on the risk-free rate
Q.1329 What is the standard deviation of an equally weighted portfolio consisting of one risky asset
and one risk-free asset if the standard deviation of the risky asset is 36%?
A. 0.18
B. 0.36
C. 0.0648
Q.1330 Which of the following terms appropriately defines the difference between the expected
return of the market and the risk-free rate of return?
A. Capital allocation line
B. Market risk premium
C. Capital market line
Q.1331 T he optimal capital allocation line for all investors is called the:
A. Efficient frontier.
B. Capital allocation line.
C. Capital market line.
41
Q.1332 Investors who believe market prices are informationally efficient will most likely follow
which of the following investment strategy?
A. Passive investment strategy
B. Bottom-up strategy
C. Active investment strategy
Q.1333 Calculate the asset beta when the standard deviation of market returns is 21% and the
covariance of assets return with the market return is 0.039.
A. 1.3
B. 0.70
C. 0.88
Q.1334 Which of the following is a risk that can be diversified away?
A. Diversification risk
B. Unsystematic risk
C. Systematic risk
Q.1335 Which of the following is least likely an assumption of the capital pricing model?
A. Investors require higher returns with higher risks.
B. Investors are subject to taxes and transaction costs.
C. All investors have the same one-period time horizon.
Q.1336 Which of the following assets has the highest systematic risk?
A. Shares of a Flight High Luxury Jets
B. Shares of Bank of Detroit
C. Shares of Smart-Mart Utilities Store
42
Q.1337 Which of the following uses systematic risk on the X-axis?
A. Security market line
B. Capital market line
C. Capital allocation line
Q.1339 T he standard deviation of an asset's return is 10%, and the standard deviation of markets
return is 14%. If the correlation of returns with the market index is 0.7, then the beta of the asset is
closest to:
A. 0.5.
B. 0.1.
C. 1.8.
Q.1340 T he expected return of a portfolio is 17% and the return on risk-free assets is 8%. T he beta
of the portfolio is 1.2, and the standard deviation of the portfolio is 5.5%. Assuming that an investor
invests 115% of his savings in this portfolio, his expected return is closest to:
A. 18.35%.
B. 19.55%.
C. 12.5%.
Q.1341 Which of the following return generating models uses macroeconomic indicators such as
GDP growth, inflation along with fundamental factors like earnings, and earnings growth?
A. Market model
B. Multifactor model
C. Revenue model
43
Q.1342 Kate Williams is a portfolio risk analyst for Hampton Funds. She is assigned to calculate the
beta of Lion Inc. shares. What is its beta if the standard deviation of market returns is 19% and the
covariance of Lions returns with the market return is 0.163?
A. 0.85
B. 4.51
C. 0.0451
Q.1343 What is the expected return of a stock if the expected market return is 11%, the risk-free
rate is 9%, and the stock's beta is 0.91?
A. 11%
B. 19.91%
C. 10.82%
Q.1345 What is the covariance of an asset's returns with the market if the beta of the asset is 1.7
and the variance of market returns is 20%?
A. 0.34
B. 0.85
C. 0.12
Q.1346 What is the market risk premium if the expected return on the market is 13%, the average
stock's beta is 1, and the risk-free rate is 8%?
A. 9%
B. 13%
C. 5%
44
Q.1348 What is the market risk premium if the expected return on a stock is 12% while its beta is
1.5? Assume the risk-free rate to be 6%.
A. 6%
B. 4%
C. 10%
Q.1350 Malala Pham is an equity analyst. Her supervisor has given her the task of deriving the beta
of a stock from the CAPM. What is the value of the beta if the risk-free rate is 3%, the expected
return of the market is 14%, and the return on the stock is 11.8%?
A. 1
B. 1.5
C. 0.8
Q.1351 A stock is trading at $35 and its expected price next year is $47. Determine whether the
stock is undervalued or overvalued if the market risk premium is 8%, the risk-free rate is 5% and the
Beta of the stock is 1.8.
A. Undervalued
B. Overvalued
C. Properly valued
Q.1352 T he standard deviation of a portfolio is 15%. If the portfolio's return is 22%, and the risk-free
return is 6%, then the Sharpe ratio of the portfolio is closest to:
A. 0.91.
B. 1.07.
C. 1.46.
45
Q.1353 Which of the following measures excess return per unit of total risk?
A. Jensen's alpha
B. T reynor ratio
C. Sharpe ratio
Q.1354 Which of the following is the appropriate action for a stock which is currently trading at $50
with an expected price next year of $56 and a required rate of return of 10%?
A. Buy the stock because it is undervalued.
B. Buy the stock because it is overvalued.
C. Sell the stock because it is undervalued.
Q.1355 T he 10-year US T reasury rate is 5% and the return on the S&P 500 index is 10%. If the beta
of Orange is 1.2, the expected return on shares of Orange Inc. is closest to:
A. 11%.
B. 15%.
C. 17%.
Q.1356 Which of the following statements is appropriate regarding the plot of undervalued stocks on
the security market line?
A. Undervalued stocks plot above the SML.
B. Undervalued stocks plot under the SML.
C. Stocks always plot on the SML.
46
Q.1357 Nisha Jatoi is an equity analyst and is assigned to discount the net present value (NPV) of Indo
Inc. that has 30% debt in its capital structure. If the after-tax cost of debt is 8%, the risk premium is
6%, the risk-free rate is 4%, and the Beta of Indo is 0.9. Assuming that Indo Inc. is financed with
equity, then the discount rate Jatoi should use is closest to:
A. 9.4%.
B. 8.9%.
C. 17.4%.
Q.2875 An unleveraged portfolio is constructed of two assets, including a risky asset with a standard
deviation of 18% and a risk-free asset. If the weight of the risk-free asset in the portfolio is 35%,
then the standard deviation of the portfolio is closest to:
A. 18%.
B. 6.3%.
C. 11.7%.
Q.2876 Which of the following is the most appropriate explanation of the Capital Allocation Line
(CAL)?
A. T he Capital Allocation Line presents the investor's risk tolerance given risky assets and
risk-free assets.
B. T he Capital Allocation Line demonstrates the set of portfolios within the investor's
budget.
C. T he Capital Allocation Line presents the possible risk and return combinations of risky
assets and risk-free assets.
Q.2877 Which of the following is most likely an assumption of the Modern Portfolio T heory?
A. All investors prefer optimal portfolios made up of risk-free assets.
B. All investors have homogeneous expectations related to the risk and return of portfolios.
C. All investors have the same efficient frontier but different Capital Allocation Lines.
47
Q.2878 A portfolio manager is constructing a portfolio composed of two assets. Asset A is a risky
asset with an expected return of 14% and a standard deviation of 22%, and asset B is a risk-free asset
with an expected return of 9%. If the portfolio manager increases the weight of the risky asset to
130%, then the expected return of the portfolio is closest to:
A. 18.2%.
B. 15.5%.
C. 16.7%.
Q.2879 Amy Stevenson, CFA, has recently emigrated to Germany. She believes the German stock
markets are information efficient. Which of the following is least likely going to be her investing
strategy?
A. Passive investing
B. Investing in index funds
C. Active investing
Q.2880 Which of the following statements is least likely accurate?
A. When assets are perfectly correlated, an investor can diversify its risk.
B. Firm-specific risk can be decreased with diversification.
C. T he risk that cannot be diversified is called systematic risk.
Q.2881 A manager values a project that is to be financed with 58% equity and 42% debt at the cost of
8.4%. Suppose the market return is 6.5%, the risk-free rate is 5%, and the beta is 0.8, then the
expected return of equity is closest to:
A. 9.6%.
B. 6.20%.
C. 10.5%.
48
Q.2882 A manager is valuing a project that is to be financed with 60% equity. Suppose the market
risk premium is 4%, the risk-free rate is 5%, the after tax cost of debt is 7%, and the beta is 0.9,
then the rate used for calculating the net present value (NPV) of the project is closest to:
A. 7.96%.
B. 8.60%.
C. 9.68%.
Q.2883 T he expected return of the Karachi Stock exchange is 17%, and the rate on Pakistan's risk-
free bonds is 7.5%. Suppose the beta of Bata Corporation shares is 0.75, then the required rate of
return on Bata Corporation's shares is closest to:
A. 14.63%.
B. 20.25%.
C. 16.73%.
Q.2884 Shares of Fition Corp. are trading at $67 today while analysts expect the price of the shares
to reach $72 in 1 year and pay a dividend of $1.50. Given a required rate of return of 14%, Shares of
Fition Corp. are most likely :
A. Underpriced by $2.53.
B. Overpriced by $2.53.
C. Underpriced by $3.84.
Q.2885 Which of the following portfolios is/are most appropriately priced?

I. A portfolio with an estimated return above the securities market line (SML).
II. A portfolio with an estimated return plotted on the SML.
III. A portfolio with an estimated return below the SML.
A. Portfolios I & II
B. Portfolio II
C. Portfolios II & III
49
Q.2886 Which of the following measures of risk-adjust returns is least likely to use beta?
A. T reynor measure
B. Jensen's alpha
C. M-squared measure
Q.2887 If the covariance between the market portfolio and Arthemisca's shares is 0.46, the standard
deviation of Arthemisca's shares is 0.9, and the standard deviation of market returns is 0.7, then
Arthemisca's shares beta is closest to:
A. 0.94.
B. 0.57.
C. 1.3.
Q.2888 A portfolio manager is constructing a portfolio composed of two assets. Asset A is a risky
asset with an expected return of 14% and a standard deviation of 22% whereas asset B is a risk-free
asset with a return of 9%. Suppose the portfolio manager increases the weight of the risky portfolio
to 130%, then the risk of the portfolio is closest to:
A. 28.6%.
B. 22%.
C. 53.4%.
50
Q.3434 A portfolio has the following characteristics:
Exhibit: Portfolio Characteristics
Risk-free rate 5%
Portfolio return 12%
Standard deviation 3%
T he portfolio’s Sharpe ratio is closest to:
A. 2.33.
B. 2.54.
C. 2.67.
Q.3435 T he Sharpe ratio is best described as:
A. T he excess return generated per unit of total risk.
B. T he excess return generated per unit of systematic risk.
C. T he excess return generated per unit of unsystematic risk.
51
Reading 51: Basics of Portfolio Planning & Construction
Q.138 What should an Investment Policy Statement most likely contain?
A. It should describe the context, the investor and the structure of the investment.
B. It should describe the overall investment objective.
C. It should state the stocks and derivatives the investor will purchase.
Q.139 Which of these is not one of the two major components of an Investment Policy Statement?
A. Statement of the responsibilities of the investment manager and the client
B. Performance evaluation benchmark
C. T he investment manager's compensation
Q.140 Which of the following statements is most likely accurate?
A. High levels of uncertainty are associated with low potential returns.
B. Risk and return should be considered on a mutually exclusive basis.
C. Return objectives should be considered in conjunction with risk preferences.
Q.793 With respect to the Investment Policy Statement (IPS), which of the following statements is
least likely accurate?
A. T he IPS is a one-time exercise undertaken at the beginning of the portfolio construction.
B. T he IPS typically includes the client's investment objectives and the constraints that
apply to the client's portfolio.
C. Maintaining an IPS or any other similar document for the clients may be required by the
laws and regulations of a particular country.
52
Q.794 Which of the following sections of an Investment Policy Statement (IPS) provides relevant
information on specific types of assets that have been excluded from the portfolio?
A. Investment objectives
B. Investment constraints
C. Investment guidelines
Q.796 Bruce Craig is in the business of trading steel in Chicago, which he inherited from his father
one month ago. His financial adviser notes the following aspects of his situation:
- He is 24 years old;
- His investment horizon is 10-20 years;
- His primary objective for investing is aggressive growth;
- His business returns are not stable as he is not being able to take prudent business decisions.
Given the information above, which of the following statements is correct?
A. Craig has a low ability to take risk, but a high willingness to take risk.
B. Craig has a high ability to take risk, but a low willingness to take risk.
C. Craig has a high ability to take risk, but a high willingness to take risk.
Q.797 With respect to return objectives, which of the following is the least likely accurate?
A. Return objective should be consistent with risk objective and also with the current
economic and market environment.
B. For taxable investors, only after-tax bases should be used for analyzing return.
C. Return objectives should be stated only on an absolute basis.
Q.798 According to the capital market theory, the optimal risky portfolio:
A. has the highest expected return
B. is the market portfolio
C. has the lowest expected variance
53
Q.799 Illiquid and risky investments are more suitable for an investor with which of the following
requirements?
A. T he investor's huge tax liability payment is due for in six months.
B. T he investor's main purpose of investment is to plan for retirement.
C. T he investor has to incur expenses for his children's education in a short span of time.
Q.800 Which of the following constitutes a legal or regulatory constraint and should be noted down in
the Investment Policy Statement (IPS) of an investor?
A. T he investor has personal objections to certain companies due to the environmental

impact of business activities of those companies.
B. T he investor is the director of the company and has access to material non-public
information.
C. T he investor has a huge liability to outside parties and there are chances that he might be
declared insolvent in a short time.
Q.801 Which of the following is CORRECT in terms of the principles of strategic asset allocation
while constructing a portfolio?
A. T he portfolio's total risk accounts for most of its change in value over the long-term.
B. T he portfolio's systematic risk accounts for most of its change in value over the long-
term.
C. T he portfolio's non-systematic risk accounts for most of its change in value over the long-
term.
Q.802 Apart from the exposures to systematic risk factors specified in the strategic asset allocation,
the returns of an investment strategy depend on which of the following other sources?
A. Tactical asset allocation
B. Security selection
C. Both A) and B)
54
Q.803 Which of the following BEST describes the rebalancing policy?
A. An attempt to generate a higher return than the asset class benchmark
B. T he set of rules to guide the process of restoring the portfolio's original exposures to
systematic risk factors
C. T he decision to deliberately deviate from the policy portfolio
Q.804 A top-down investment approach has been described to suffer from certain limitations. Which
of the following is least likely a limitation of a top-down investment approach?
A. T he majority of the portfolio is invested on a passive or low active risk basis
B. T he under-utilization of risk budget for a client
C. T he portfolio is not efficient from the capital tax gains point of view
Q.1280 Which of the following is the appropriate reason for writing an Investment Policy Statement
(IPS)?
A. It provides the investor's return goals and risk tolerance.
B. It provides details regarding the investment style of the manager.
C. It provides details of policies regarding fund management.
Q.1281 Which of the following is least likely a component of an Investment Policy Statement?
A. T he description of the client
C. T he manger's investment style
55
Q.1282 An Investment Policy Statement (IPS) component regarding performance evaluation contains
which of the following?
A. T he objectives of the manager
B. A benchmark
C. T he standard deviation of the portfolio
Q.1283 John Keller mentioned in his Investment Policy Statement that his portfolio's return should
not go below 10% at the end of every year. Which of the following types of risk objectives does
Keller have?
A. Absolute risk objective
B. Relative risk objective
C. Risk-minimizing objective
Q.1284 An investor has just lost his job and has mortgages payments to make. He believes that
investing in technology stocks can earn him sufficient returns to pay for them. Assuming these
circumstances, evaluate his risk tolerance.
A. T he investor has a high ability to take risk but no willingness to take risk.
B. T he investor has a high willingness to take risk but low ability to take risk.
C. T he investor has a high risk tolerance and a high ability to take risk.
Q.1285 Which of the following is a relative risk objective?
A. Returns should not go below 18% in 6-months.
B. T he total loss on the portfolio should not be more than $8 million in 6-months.
C. T he returns should not be below 10% of the returns on the S&P 500 index.
56
Q.1288 Which of the following is least likely an investment constraint for an investor?
A. Tax situation
B. Legal and regulatory constraints
C. Management fees
Q.1289 An investor directs his portfolio manager not to invest in shares of DC Oil T ransporting
Company which has been accused of releasing chemical waste into the ocean. Which type of
investment constraint is it?
A. Legal and regulatory
B. Unique circumstance
C. Anti-dumping tax
Q.1290 Which of the following specifies the percentage of each asset included in each asset class?
A. Investment Policy Statement (IPS)
C. Strategic asset allocation
Q.1292 Which of the following is appropriate for a manager who deviates from strategic asset
allocation weights to take advantage of short-term opportunities?
A. Strategic asset allocation
B. Tactical asset allocation
C. Opportunistic selection
57
Q.1293 During the strategic asset allocation, which of the following leads to greater diversification
benefits?
A. Low correlation within the asset classes
B. Low correlation between asset classes
C. High correlation between the asset classes
Q.1294 T he action of deviating from index weights on individual securities within asset classes is
referred to as:
A. Tactical asset allocation.
B. Strategic asset allocation.
C. Security selection.
Q.1295 A practice that limits the overall risk of a portfolio and allocates the portion of permitted risk
to different asset allocation strategies is known as:
A. risk budgeting.
B. risk mitigating.
C. risk seeking.
Q.1296 Which of the following strategies allocates the majority portion to passively managed indices
and a small portion to actively managed indices?
A. Passive portfolio management
B. Strategic asset allocation
C. Core-satellite approach
58
Q.1297 Which type of portfolio manager allocates the larger portion of investments to exchange-
traded funds?
A. Passive managers
B. Active managers
C. Hedge fund managers
Q.1298 Shaikh Hamid is 20 years old self-made millionaire who has $1 million of annual income with
no mortgages. Because of the high volatility in small-cap stocks, Hamid is unsure about his
investments in small-cap stocks. As the investment manager of Hamid, analyze his risk tolerance.
A. Hamid has a high risk ability and a high willingness to take risk.
B. Hamid has a low risk ability and a high willingness to take risk.
C. Hamid has a high risk ability and a low willingness to take risk.
Q.2890 Which of the following is least likely a component of an Investment Policy Statement (IPS)?
A. Duties and responsibilities of the investment manager
B. Procedures to update the IPS
C. Investment expertise of the investment manager
Q.2891 Which of the following investment policy statements is the most appropriate IPS?
A. Amir Khan aims to earn significant returns on its portfolio of $2 million in 4 years.
B. T he goal of Jack Wilson, a high net worth individual, is to earn a 20% return on its
portfolio from oil sector stocks within the time frame of 5 years.
C. Michael T rott's investment goal is to beat the Dow Jones Industrial index by 3%.
59
Q.2892 Which of the following is least likely an example of an absolute risk objective?
A. T he portfolio must not decrease in value by more than 4% at any point in a quarter.
B. T he portfolio must not have greater than a 10% probability of a loss of $100,000 in 12
months.
C. T he portfolio must not have greater than a 5% probability of returns less than 95% of the
S&P 500's returns in 6 months.
Q.2893 Which of the following least likely depicts the investor's ability to take risk?
A. Seventy percent of the investor's home mortgage has already been paid.
B. T he investor has net assets of $470,000 and an investment horizon of 14 years.
C. T he investor is a Ph.D. in Economics and understands the risk associated with the stock
markets.
Q.2894 Which of the following investors has the highest ability to take risk?
A. A 24-years old unemployed finance graduate with student loans amounting to $80,000 but
in-depth knowledge of financial markets.
B. A 55-years old war veteran with $400,000 in savings and medical insurance but no
knowledge of investments.
C. A married couple in their 30's with 4 kids and contractual jobs.
Q.2895 Which of the following is the appropriate definition of a relative risk objective?
A. A relative risk objective states the probability by which a portfolio can assume risk.
B. A relative risk objective defines the percentage by which a fund can lose value.
C. A relative risk objective mentions a percentage by which a portfolio can take risk as
compared to a benchmark.
60
Q.2898 During a meeting with his investment manager, an investor requested the manager not to
invest his money in the Republic of Somalia as the investors believe that the taxes that Somalia
collects on investments are used for arms manufacturing. Determine the most appropriate
categorization of the investor's request.
A. T he investor's request should be categorized under tax constraints.
B. T he investor's request should be categorized under legal constraints.
C. T he investor's request should be categorized under unique constraints.
Q.2899 Which of the following portfolios will lead to higher risk reduction through diversification?
A. A portfolio consisting of 3 sectors with a high correlation of assets within the sectors and
a high correlation of sectors with each other.
B. A portfolio consisting of 3 sectors with a high correlation of assets within the sectors and
a low correlation of sectors with each other.
C. A portfolio consisting of 3 sectors with a low correlation of assets within the sectors and
a high correlation of sectors with each other.
Q.2900 T he process of determining the specific percentage to be allocated to specific sectors after
analyzing the investor's objectives and constraints is called:
A. security selection.
B. passive management.
C. strategic asset allocation.
Q.2901 T he manager of a pension fund recently deviated from the predetermined weights of asset
classes of the pension fund portfolio to take short-term opportunities. T his strategy of varying
weights is known as:
A. technical asset allocation.
B. tactical asset allocation.
C. risk budgeting.
61
Q.2902 A 40-years old manager at one of the biggest law firms in New York with net assets of
$1,070,000 and basic social security believes that investing in stocks is most profitable when the
stock is less volatile because the stock market is rigged. Using the above assumptions, determine the
ability and the willingness of the investor.
A. High ability and high willingness to take risk
B. High ability and low willingness to take risk
C. Low ability but high willingness to take risk
Q.2903 A hedge-fund manager based in Dubai overweights the media sector stocks as compared to
the medical sector stocks from the Dubai Index and he does not plan to rebalance the portfolio. T his
process of overweighting a specific asset class or sector is most likely referred to as:
A. tactical asset allocation.
B. strategic asset allocation.
C. securities selection.
62
Reading 52: The Behavioral Biases of Individuals
63
Reading 53: Introduction to Risk Management
Q.125 Which risk is most likely to disappear when you have a diversified portfolio?
A. Interest rate risk
B. Systematic risk
C. Unsystematic risk
Q.127 A portfolio consisting of perfectly positive correlated assets:
A. does not affect diversification.
B. minimizes unsystematic risk.
C. minimizes systematic risk.
Q.1182 Which of the following is least likely an activity of the risk management framework?
A. Performing strategic risk analysis
B. Predicting expected political risk
C. Establishing risk governance policies
Q.1183 Risk communication across the organization is most likely part of the:
A. risk management process.
B. risk management framework.
C. risk governance.
64
Q.1185 Nisha Mazhar is a risk analyst, and she has been given the task to identify the factor that
helps measure her organization's risk tolerance. Which of the following factors will help Mazhar
complete her task?
A. Market demand
B. Financial strength
C. Interest rates
Q.1186 T he process of allocating resources to different assets of an organization after considering

their risk characteristics is called:
A. risk budgeting.
B. risk analysis.
C. risk mitigation.
Q.1187 Which of the following metrics is not used for risk budgeting?
A. Value at risk
B. Portfolio duration
C. Risk aversion
Q.1188 T he purpose of risk governance is to seek to manage risk in order to achieve:
A. organizational goals.
B. senior management's goals.
C. shareholders' goals.
65
Q.1189 T he risk associated with the uncertainty regarding the fulfillment of a contractual obligation
by a counterparty is called:
A. market risk.
B. credit risk.
C. liquidity risk.
Q.1190 T he risk of restrictions on the firm's activities is associated with the:
A. regulatory risk.
B. credit Risk.
C. governmental risk.
Q.1191 T he non-financial risk associated with organizations is most likely called:
A. market risk.
B. tax risk.
C. interest rate risk.
Q.1192 Which of the following is least likely a type of financial risk?
A. Credit risk
B. Accounting risk
C. Liquidity risk
Q.1193 T he risk that arises from incorrectly concluding that extreme events are least likely to
occur than they actually are is called:
A. environmental risk.
B. risk of natural disasters.
C. tail risk.
66
Q.1194 T he longevity risk or risk of living longer than anticipated can be mitigated by:
A. buying insurances.
B. buying lifetime annuities.
C. buying T-Bills.
Q.1195 Which of the following is used to measure the price sensitivity of bonds to the changes in
market interest rates?
A. Duration
B. Yield-to-maturity
C. Beta
Q.1197 BCG Bank has a one-month Value at Risk (VaR) of $600 million with the probability of 7%,
which means:
A. A one-month maximum loss of $600 million will occur 7% of the time.
B. A one-month minimum loss of $600 million will occur 7% of the time.
C. A loss of $600 million will occur one month from now.
Q.1198 Matt Frank is an equity analyst at the Istanbul Income Fund who wants to measure the
benefits of diversification in equity portfolios. Which of the following measures serves the purpose
of measuring diversification?
A. Beta
B. Standard deviation
C. Delta
67
Q.1199 Which of the following will pay for losses incurred to the employer by employees' theft or
misconduct?
A. Fidelity Bond
B. Euro Bond
C. Surety
Q.1200 Which of the following "Greeks" measures the amount that an option contract's price
changes in reaction to a change in the implied volatility of the underlying asset?
A. Rho
B. Vega
C. Gamma
Q.2850 T he process of adjusting the risk being taken towards the risk to be taken to maximize the
portfolio's value is called:
A. risk measurement.
B. risk exposure.
C. risk management.
Q.2851 Which of the following is least likely a goal of the risk management process?
A. Identifying the risk
B. Taking the risk to maximize the company's value
C. Minimizing the risk
68
Q.2853 Which of the following key factors of the risk management framework involves the
quantitative assessment of potential sources of risk and the organization's risk exposure?
A. Risk analysis and integration
B. Risk identification and measurement
C. Risk infrastructure
Q.2854 Which of the following is least likely an element of the risk management framework for an
individual?
A. Risk communication
B. Risk identification and measurement
C. Risk monitoring
Q.2855 Which of the following are two important areas in which governing bodies drive the risk
framework?
A. Defining the risk tolerance of the organization and self-insuring the governing body
B. Determining the organization's goals and defining the risk appetite/tolerance of the
organization
C. Determining the organization's goals and driving the organization away from taking risks
Q.2856 T he most likely risk tolerance activity that is conducted by the risk governance body of an
organization is:
A. selecting portfolios of acceptable risk activities.
B. producing the highest returns at any given risk level.
C. establishing the organization's risk appetite.
69
Q.2857 Which of the following is the most appropriate risk tolerance definition from the enterprise
risk management perspective?
A. Risk tolerance identifies the extent to which the enterprise is willing to lose money and
incur opportunity costs.
B. Risk tolerance provides the organization-wide risk metrics for identifying the risk
tolerance level of the investors.
C. Risk tolerance is defined as quantifying and allocating the tolerable risk using specific
metrics.
Q.2858 Which of the following statements concerning risk assembling activities is most likely an
example of risk budgeting?
A. T he portfolio must not include more than 55% of equities and 45% of real assets.
B. T he beta of the portfolio must not be above 0.85.
C. T he portfolio must invest 50% of its funds in value stocks and 50% in fixed assets with
maturities longer than 3-years.
Q.2859 Which of the following is most appropriate for controlling the risk management function of
the organization?
A. Head of the risk committee
B. Head of the audit committee
C. Chief Financial Officer (CFO)
Q.2860 Which of the following is the appropriate explanation of the term ''financial risk''?
A. Financial risks are those risks that have monetary consequences.
B. Financial risks are those risks that arise from the finance department of the firm.
C. Financial risks are those risks that originate from financial markets.
70
Q.2861 Which of the following is least likely a type of financial risk?
A. Credit risk
B. Solvency risk
C. Liquidity risk
Q.2862 Which of the following risks arises from a change in interest rates?
A. Credit risk
B. Solvency risk
C. Market risk
Q.2863 Which of the following is the risk associated with an organization unable to meet its long-
term financial commitments?
A. Solvency risk
B. Credit risk
C. Liquidity risk
Q.2864 Which of the following is most likely an example of model risk?
A. Assuming that the tails of the return distribution are fat when, in fact, they are flat
B. Using standard deviation for measuring the risk of asymmetrically distributed returns
C. Using VaR to measure the risk on government bonds
71
Q.2865 Which of the following statements appropriately describes the risk drivers?
I. Risk drivers are factors that influence industries and economies.
II. Risk drivers are customized frameworks for mitigating organizational risks.
III. Risk drivers are statistical metrics that measure risk.
A. Statement I only
B. Statements I & II only
C. Statements I, II & III
Q.2866 Which of the following statements is/are least appropriate?

I. Metrics in the context of risk refer to the quantitative measures of risk exposure.
II. Probability is the measure of relative frequency with which one would expect a series of
outcomes.
III. Standard deviation is a measure of interdependence of variable quantities.
A. Statement I only
B. Statement II & III only
C. Statement III only
Q.2867 Which of the following metrics measures the sensitivity of a security's returns to the
returns of the market portfolio?
A. Delta
B. Beta
C. Gamma
Q.2868 Which of the following metrics measures the sensitivity of derivative prices to small changes
in the value of the underlying asset?
A. Beta
B. Delta
C. Vega
72
Q.2869 Which of the following risk metrics is considered a second-order risk metric?
A. Delta
B. Vega
C. Gamma
Q.2870 Which of the following is the first-order risk measure of the change in the option price for a
change in the volatility of the underlying asset?
A. Gamma
B. Rho
C. Vega
Q.2871 An analyst has recently read a research paper developed at a renowned university which says
that the prices of derivatives are also sensitive to the changes in interest rates. If the analyst is
interested in measuring such changes, then the best metric he should use is:
A. Rho.
B. Gamma.
C. Delta.
Q.2872 Which of the following metrics measures the sensitivity of fixed income instruments to
changes in interest rates?
A. Rho
B. Vega
C. Duration
73
Q.2873 Which of the following three elements are measured with the VaR risk metric?
A. T he amount at risk of the total portfolio, the time period to maturity and the probability of
default
B. T he amount at risk, the time period and the probability
C. T he amount at risk, the time period and the sensitivity of price to the changes in volatility
Q.2874 Which of the following is the most appropriate explanation for risk transfers and risk
shifting?
A. Risk transfer refers to actions that change the distribution of risk outcomes whereas risk
shifting refers to actions taken that pass on risk to other parties.
B. Examples of risk transfers include derivatives and examples of risk shifting include
insurances.
C. Risk shifting refers to actions that change the distribution of risk outcomes whereas risk
transfer refers to actions taken that pass on risk to other parties.
74
Reading 54: Technical Analysis
Q.427 Which of these is not a commonly used technical analysis pattern?
A. Head and shoulders
B. Ascending flag
C. Short buffalo wings
Q.428 A technical analyst finds that ABC stock has a head and shoulders pattern with the peak being
at $75, the neckline at $66 and shoulders around $70. On today's trading session, the stock breaches
$66 to the downside. What is the most probable outcome the analyst predicts for the stock?
A. T he stock will rebound to $70
B. T he stock will rebound to $75
C. T he stock will keep going down to $57
Q.429 In behavioral finance, a herd mentality is:
A. a mentality characterized by the presence of strong individual decision-making.
B. a mentality characterized by a lack of individual decision-making.
C. a mentality characterized by timidity and lack of moral courage.
Q.430 A change in polarity happens:
A. when a stock trends downwards and then starts trending upwards, or vice-versa.
B. when a support level (resistance level) is breached, reversing its role to act as the new
resistance (support) level for the price.
C. when a resistance level or support level is met and always breached.
75
Q.431 In the last three months, ABC stock has gone up four times to 100 but has never breached it. A
technical analyst would say 100 in ABC is a:
A. resistance level.
B. support level.
C. change in polarity.
Q.432 A triangle pattern is a:
A. continuation pattern.
B. reversal pattern.
C. resulting pattern.
Q.435 Intermarket analysis is mostly based on the concept that:
A. all markets have no correlation between one another.
B. all markets have strong form efficiency.
C. some markets are interlinked.
Q.1086 Which of the following charts displays a box bounded by the opening and the closing prices?
A. Bar charts
B. Candlestick charts
C. Point and figure charts
Q.1087 Which of the following refers to the lines based on the standard deviation of the closing
prices over the last 'n' periods?
A. Bollinger bands
B. Candlestick charts
C. Elliott wave patterns
76
Q.1088 Kondratieff waves, cycle-like phenomena of alternating intervals between high sectoral
growth and intervals of relatively slow growth, consist of cycles of:
A. 36 years.
B. 72 years.
C. 54 years.
Q.1089 Which of the following charts depicts a continuous line that connects the closing prices for
each period?
A. Line chart
B. Bar chart
C. Candlestick chart
Q.1090 When the prices are reaching higher highs and higher lows, this is a case of a (an):
A. uptrend.
B. downtrend.
C. neither A) nor B).
Q.1091 T he price level or range at which the buying or selling pressure is expected to limit price
movement is known as:
A. support.
B. resistance.
C. both A) and B).
77
Q.1092 For an asset with a current price of 10, which of the following price targets is most likely
based on a Fibonacci ratio?
A. 16.18
B. 10.48
C. 12.94
Q.1093 If a stock's relative strength ratio increases, the stock is most likely :
A. outperforming its benchmark.
B. increasing in price.
C. increasing on high volume or decreasing on low volume.
Q.1094 Which of the following is least likely a sentiment indicator?
A. Opinion polls
B. Volatility index
C. Elliott wave
Q.1095 According to the Elliott wave theory, the prices exhibit a pattern of:
A. five waves in the direction of a trend and three waves counter to the trend.
B. six waves in the direction of a trend and three waves counter to the trend.
C. five waves in the direction of a trend and two waves counter to the trend.
Q.1097 A momentum indicator which is based on the ratio of price increases to price decreases over
the last 30 days is most likely to be a:
A. rate of change oscillator.
B. relative strength index.
C. stochastic oscillator.
78
Q.2792 Which of the following assumptions are true regarding technical analysis?
I. Technical analysis assumes that the Efficient Market Hypothesis holds.
II. Market prices reflect both informed and uninformed investors.
III. Technical analysis assumes that price trends and patterns tend to repeat over time.
A. Assumptions I & II
B. Assumptions II & III
C. Assumptions I & III
Q.2793 Mr. Smith is a fundamental research analyst in the equity investment department at an
investment bank, while Mrs. Drinan is a technical analyst at the same bank. Suppose both of them
are given the task to derive the intrinsic value of a health insurance company's shares, which analyst
is most likely to include the effect of income taxes on insurance companies in its analysis?
A. Mr. Smith
B. Mrs. Drinan
C. Both Mr. Smith and Mrs. Drinan
Q.2794 Which of the following chart is least likely to present high and low prices along with opening
and closing prices for each specific period?
A. Candlestick charts
B. Bar charts
C. Line charts
79
Q.2795 Which of the following statements holds true if the body of a candlestick chart is white?
I. T he closing price is higher than the opening price.
II. T he opening price is higher than the closing price.
III. T he opening price is equal to the high price.
A. I only
B. II only
C. I & III only
Q.2796 A technical analyst analyzing a stock's chart notices an increase in price but a decrease in
volume. Which of the following interpretations is he most likely to make?
A. T he rally in the stock's price will persist as few sellers are willing to short-sell the stock
even at higher prices.
B. T he rally in the stock's price will soon end as fewer buyers are willing to purchase at
higher prices.
C. T he rally in the stock's price will persist as a new cycle of buyers will keep buying the
stock after a brief period of consolidation.
Q.2797 Which of the following trends ismost likely to exists if the prices are declining but closing at
lower highs?
A. Uptrend
B. Downtrend
C. Breakout trend
Q.2798 Which of the following is the most appropriate explanation of a resistance level?
A. A resistance level is defined as a price level at which buying activity is sufficient to

prevent a further decline in prices.
B. A resistance level is defined as that high price range, which if breached becomes a low
price range.
C. A resistance level is defined as a price level at which selling activity is sufficient to stop
the increase in price.
80
Q.2799 A technical analyst has noticed a head and shoulders pattern in oil prices when the prices of
oil peaked at $63 this week. Suppose the analyst believes the neckline of the pattern is at $44,
determine the price target for oil.
A. $25
B. $44
C. $19
Q.2800 Which of the following is the least likely a reversal pattern?
A. Head and shoulders pattern
B. Double top pattern
C. T riangle pattern
Q.2801 An analyst is analyzing the relative strength of Cherry Computer's stock against the Tech 100
index. Which of the following is the most appropriate interpretation if the relative strength has fallen
from 0.028 to 0.018?
A. Cherry Computer stock's prices are falling.
B. Cherry Computer is underperforming the Tech 100 index.
C. Cherry Computer's volume is declining in comparison to the Tech 100 index.
Q.2802 A financial news editor is writing an article about the trend in the stock price of Approach
Future Corp. If he noticed that the 60-day moving average of the closing price for the stock was
crossed from underneath by a 20-day moving average line, which of the following terms can he use in
his article for this interaction of moving averages?
A. Change of polarity
B. Death cross
C. Golden Cross
81
Q.2803 In which of the following situations will a contrarian investor purchase a security based on a
Bollinger bands analysis?
A. When the security price reaches the upper band of the Bollinger bands.
B. When the security price reaches the lower band of the Bollinger bands.
C. When the range between the upper band and the lower band of the Bollinger bands
becomes wider.
Q.2804 Which of the following oscillators is most likely a momentum oscillator?
A. Bollinger Band
B. Relative Strength Index
C. Moving Average
Q.2805 Using the positive and negative changes in the stock price given in the following table,
calculate the Relative strength index (RSI) of the stock.
Date Price Up Change Price Down Change

09-Mar-15 $0.09
10-Mar-15 $0.13
11-Mar-15 $0.05
12-Mar-15 $-0.68
13-Mar-15 $-0.42
16-Mar-15 $0.25
17-Mar-15 $-0.54
18-Mar-15 $0.14
19-Mar-15 $0.02
20-Mar-15 $-0.31
23-Mar-15 $-0.06
24-Mar-15 $0.08
25-Mar-15 $0.21
26-Mar-15 $-0.21
27-Mar-15 $-0.54
30-Mar-15 $-0.12
31-Mar-15 $0.17
01-Apr-15 $0.07
A. T he RSI is 70.42 and the stock is oversold.
82
B. T he RSI is 20 and the stock is oversold.
C. T he RSI is 25.15 and the stock is oversold.
Q.2806 Which of the following statements is most appropriate regarding opinion polls?
A. Technicians use opinion polls to verify past trends.
B. Opinion polls provide useful interpretation without being compared to market

performance.
C. Opinion polls are only useful if they are conducted over several business cycles.
Q.2807 Which of the following most likely depicts the effect of options prices on the CBOE Volatility
Index (VIX)?
A. If Investors anticipate a decline in the general market, they increase the bid price on put
options which increases the VIX level.
B. If Investors anticipate a decline in the general market, they decrease the bid price on put
C. If Investors anticipate a decline in the general market, they increase the bid price on call
Q.2808 Calculate the Short Interest Ratio of White Hat Inc. shares if 7,648,444 shares were sold
short on the first day of a week and the average daily trading volume is 5,699,232 shares. Assume the
total paid-up capital of White Hat is 8 million shares with a stock price of $1.
A. 0.95
B. 1.4
C. 1.34
83
Q.2809 Using the data given in the following table, calculate and interpret the T RIN ratio for KSE
100 Index.
Advancing Declining
Number of Issues 233 412
Volume 233,785,122,807 285,622,874,961
A. T he T RIN is 0.56 and it suggests there is more activity in declining stocks.
B. T he T RIN is 0.69 and it suggests there is more activity in rising stocks.
C. T he T RIN is 0.69 and it suggests there is more activity in declining stock.
Q.2810 As a technical analyst, you have been given the following information regarding the stock of
New Nirja Ltd.:
1. T he 20-day moving average crosses the 90-day moving average of a stock price from above.
2. T he T RIN ratio is 1.1.
3. T he RSI is 73.42.
T he most likely investment strategy for the given asset is to:
A. buy the asset.
B. short-sell the asset.
C. hold the asset.
Q.2811 According to the Presidential Cycle, in which of the following years do markets demonstrate
the highest positive returns?
A. Pre-election year
B. Election year
C. Post-election year
84
Q.3447 Consider the following statements:
I. Proponents of technical analysis believe that humans are rational.

II. Proponents of technical analysis believe that all market participants have an impact on price.
Which of these statements is/are accurate?
A. I only
B. II only
C. None of the above
Q.3448 OOK shares are currently trading at $20.11. T he price gradually starts rising and reaches
$25.15 six trading sessions later. After reaching the $25.15 level,OOK falls but rebounds after
touching the $20.11 mark. T he share price then starts rising and crosses the $25.15 mark to reach
$28.52.In the next twelve trading sessions, OOK falls into the $25.15, but never crosses $25.15.
A technical analyst would most likely conclude that:
A. OOK shares are stuck in a trading channel.
B. During the initial trading sessions, $25 was the resistance level, while during the later
trading sessions, $25 was the support level.
C. During the initial trading sessions, $20 was the support level, while in the later trading
sessions, $25 was the resistance level.
Q.3449 An equity analyst computes the moving averages for three different time periods– the 5-day
exponential moving average, the 20-day simple moving average, and the 50-day simple moving
average. Which of the following statements is most accurate?
A. When the 5-day exponential moving average crosses the 50-day simple moving average
from below, it indicates an uptrend in the stock.
B. When the 50-day simple moving average crosses the 20-day simple moving average from
below, it indicates an uptrend in the stock.
C. When the 5-day exponential moving average crosses the 20-day simple moving average
from above, it indicates an uptrend in the stock.
85
Q.3472 An inverted head-and-shoulders pattern signals a:
A. reversal pattern, and the security price is likely to increase.
B. reversal pattern, and the security price is likely to decrease.
C. continuation pattern, and the security price is likely to increase.
Q.3473 An equity trader notices that the put/call ratio of stock HGE increased significantly in the last
two days. T he equity trader is most likely to:
A. sell the stock.
B. buy the stock.
C. hold the stock.
Q.3481 If the Relative Strength Index (RSI) indicates a high value, then:
A. it is an indication to go long.
B. it is an indication to go short.
C. none of the above.
Q.3482 T he stock of CuraPhram Ltd. made year highs and lows at $40 and $20, respectively.
Currently, the stock is trading near its all-time high at $40.If the share price is expected to fall on bad
earnings, the next support level according to the Fibonacci retracement would most likely be:
A. $32.36.
B. $33.40.
C. $34.00.
86
Q.3483 Select the correct statement:
A. A candlestick chart displays the opening and closing price.
B. A candlestick chart displays the opening and closing price as well as the highest and lowest
price.
C. A candlestick chart displays the highest and lowest price.
87
Reading 55: Fintech in Investment Management
Q.3692 Alternative data refers to:
A. Data used for investment analysis arising from external sources, including financial
statements and management presentations of comparable entities
B. Data used by investors to evaluate a company or product that is not related to financial
statements
C. Data used by investors for investment analysis that is not within their traditional sources
Q.3693 What are the required elements for distributed ledger technology to work?
A. A block chain to provide secure and valid achievement
B. Peer-to-peer network
C. Clearly defined asset classes for exchange
Q.3694 SmartTech, a London-based startup wishes to engage in an initial coin offering (ICO) seeking
to obtain venture capital to fund the production of high-tech drones. Which of the following is least
likely to happen?
A. SmartTech will issue new digital coins in exchange for some mainstream currency such as
the pound
B. Investors will be issued with digital tokens that can be used to purchase manufactured
drones
C. Investors will buy into the offering using fiat currency or some other cryptocurrency
Q.3695 In machine learning, overfitting describes a situation where:
A. A statistical model describes random error or noise instead of the underlying relationship
B. A statistical model reveals false or unsubstantiated patterns that lead to prediction errors
C. All of the above
88
Q.3697 Supervised learning differs from unsupervised learning in that supervised learning requires
A. at least one input attribute.
B. input attributes to be categorical.
C. at least one output attribute.
Q.3698 Supervised learning and unsupervised clustering both require at least one
A. hidden attribute.
B. output attribute.
C. input attribute.
Q.3699 An analyst wishes to develop an algorithm capable of predicting how much the market will
move if there is a sudden spike in inflation. T he best approach for this kind of problem is:
A. Supervised learning
B. Unsupervised learning
C. Data query
Q.3700 T he big data revolution witnessed in the last 50 years is down to:
A. Exponential increase in the amount of data available
B. Increase in computing power and data storage capacity, at affordable cost
C. All of the above
Q.3701 Which of the following is an application of NN (Neural Network)?
A. Credit card fraud detection
B. Stock Market Prediction/Stock Market Index Prediction
C. All of the above
89
Q.3702 Richard Gove, CFA, wishes to undertake an extensive analysis of companies in the petroleum
industry in an attempt to identify suitable investment opportunities. At hand are company filings,
quarterly earnings calls, written reports, audio records of investor briefings, and social media posts.
Which of the following forms of analysis is he most likely to undertake?
A. Deep learning
B. Text analytics
C. Data query
Q.3703 In a blockchain, blocks are:
A. Backward to the previous block
B. Forward to the next block
C. Not linked with each other
Q.3704 Each block of a blockchain consists of which of the following?
A. A list of transactions
B. A hash pointer to the previous block
C. Both a list of transactions and a hash pointer to the previous block
Q.3705 T he following are merits of distributed ledger technology, EXCEPT :
A. It can help create a single, digital record of ownership of physical assets
B. It requires relatively lower amount of computer power compared to traditional ledgers
C. It can create more accurate record-keeping and create operational efficiencies for a
firm’s compliance and regulatory reporting processes
90
Q.3706 T he main advantage of a permissionless network over a permissioned network is that:
A. It is open to any user who wishes to execute a transaction
B. T ransactions do not undergo central validation processes
C. It consumes less computer power and is easier to create
Q.3707 Sensor data is most likely taken from:
A. individuals through their online activity such as product reviews, credit card purchases,
and social media posts.
B. businesses and corporations, including sales information, credit card data, and corporate
exhaust.
C. devices such as smartphones, cameras, and satellites.
Q.3709 Machine learning is:
A. T he autonomous acquisition of knowledge through the use of computer programs
B. T he ability of machines to execute coded instructions
C. T he selective acquisition of knowledge through the use of computer programs
Q.3710 Which of the following is most likely behind the increased adoption of automatic algorithmic
trading?
A. Increased efficiency
B. Increased market destinations
C. Ability to execute large trades
91
Q.3711 Which of the following applications of Distributed Ledger Technology is best suited to
streamline real estate transactions?
A. Tokenization
B. Blockchain
C. Cryptocurrencies
Q.3712 A correct description of artificial intelligence is that:
A. It encompasses more advanced systems that are able to analyze information and make
decisions based on machine-learning logic.
B. Its goals are very different from those of machine learning.
C. It terminates the need for human input in investment analysis.
92

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Level I of the CFA® 2022 Exam

Questions - Portfolio Management

Last Updated: Nov 16, 2021

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48 - Portfolio Management: An Overview 3

Reading 48: Portfolio Management: An Overview

B. Future benefits to the account are guaranteed.

C. Future benefits fluctuate based on investment earnings.

Q.124 Which of the following is the best definition of mutual funds?

Q.757 T he standard deviation of return of an equally weighted investment portfolio in various

B. Equal to the average of the standard deviation of the individual securities.

Q.760 Which of the following statements is most likely accurate?

C. A combination of option A) and option B)

A. Money market funds and stock mutual funds

A. T he nature of the assets they invest in

B. T he maturity of the underlying assets

C. T he taxability of these two funds

A. Open-end mutual funds

B. Closed-end mutual funds

C. Exchange-traded funds (ET F)

Q.767 Which of the following is least likely a characteristic of hedge funds?

A. Hedge funds usually have restricted liquidity.

C. Hedge funds are readily available to all investors.

A. passive portfolio analysis.

Q.1267 Liquidity needs of defined benefit plans:

C. can not be ascertained.

A. defined benefit plan.

B. defined contribution plan.

A. T he investment policy statement

B. T he prospectus of the investment fund

C. T he brochure of the investment company

A. T he opening price of the fund's shares

B. T he net asset value of the fund's shares

C. T he present value of future cash-flows

Q.1276 Identify the type of funds that invests in US T reasury bills.

A. Money market funds

B. Bond mutual fund

Q.1277 Which of the following funds are passively managed?

A. Stock mutual funds

B. Money market funds

A. Venture capital fund

B. Private equity fund

Stock Expected Return Standard Deviation

A. University endowment fund

B. Property insurance companies have short-term investment horizons.

C. Insurance companies have high liquidity needs as compared to endowment funds.

B. Defined benefit pension plans

B. Finance daily expenses

C. Pay pension benefits to its employees

A. Defined contribution plan

B. Defined benefit plans

C. Fixed asset pension plan

A. Statements I & II only

B. Statements I & III only

C. Statements I, II & III.

A. Present value of fund's asset divided by the number of fund's shares

B. Total value of funds assets divided by the number of fund's shares

A. Closed-end front-load fund

B. Open-end front-load fund