1 1 CFA l1 portfolio management questions pdf

ides to increase the weight of equities to 60% by selling real estate, the portfolio standard deviation will, in percentage terms: A Increase by 3.38% B Decrease by 12.18% C Decrease by 14.44% © 2019 AnalystPrep.com All rights reserved 40 Stock returns are usually negatively skewed This statement implies that: A The standard deviation will be overestimated B There is a higher than normal possibility for extreme returns C There is a high frequency of positive deviations from the mean 41 At the beginning of the year 2010, an investor deposited $25,000 in his investment account He generated an investment gain of $4,000 during the same year, which resulted in an ending account balance of $29,000 In 2011, the investor withdrew $12,000 from his account at year end At the beginning of the year 2012, the investor deposited a further $5,000 In 2013, no further transactions were made, and the value of the investment account at the end of the year was $20,000 The IRR of the investment account is closest to: A 3.44% B 11.88% C 20.11% 42 The table below illustrates expected annual risk and beta data concerning three textile manufacturers (A, B and C) Textile Manufacturer Expected Annual Standard Deviation (%) A 25.5 Beta 1.8 B 31.8 0.6 C 19.4 1.2 Out of the three manufacturers, the highest total risk is equal to: A 0.065 B 0.101 C 0.318 © 2019 AnalystPrep.com All rights reserved 43 An investor currently owns a portfolio with an expected annual return and standard deviation of 12% and 18% respectively The investor is considering adding a new stock in his current portfolio The standard deviation of the stock is 22%, and its correlation with the current portfolio is 0.35 Considering 5% a risk-free rate, the risk-adjusted return of the stock from adding to the investor’s current portfolio is closest to: A 7.99% B 12.15% C 25.67% 44 A portfolio consists of 30 assets with the correlation being 0.75 among all pairs of assets The portfolio variance is 0.0625 The risk of such a portfolio will be closest to: A 4.84% B 15.63% C 22.62% 45 A portfolio manager forms an investment portfolio with two asset classes, and 2, held in the proportions 60% and 40% respectively The expected annual returns and standard deviations of the asset classes are summarized in the table below Asset Class Expected Annual Return (%) Expected Annual Standard Deviation (%) 13.5 15.2 20.8 24.0 If the portfolio standard deviation is 14.5%, the correlation between the two asset classes should be closest to: A 0.20 B 0.73 C 1.00 © 2019 AnalystPrep.com All rights reserved 46 One difference between a defined contribution (DC) and defined benefit (DB) plan is that in the case of the latter: A Future benefits are undefined B Investment risk exposure is low C Employees are required to contribute a portion of their wages each period 47 What are the implications for investors using the Markowitz efficient frontier for making investment decisions? A The slope of the efficient frontier is concave B Investors are rewarded with increasing increases in returns for assuming more risk C Portfolios to the right of the global minimum variance portfolio are the most efficient 48 An investor has purchased shares of a large-cap equity stock The covariance of the stock with the market index is 0.0320, while the standard deviation of the stock and the market index is 22.5% and 15.7% respectively The return of the large-cap equity stock most likely follows a trend which: A Follows the general market B Resembles the general market C Moves opposite to the general market 49 The advance in technology made the financial record keeping more efficient New technology, such as distributed ledger technology (DTL): A Provides secure ways to track ownership of financial assets on a peer-to-peer (P2P) basis B Increases the need for financial intermediaries C All of the above © 2019 AnalystPrep.com All rights reserved 50 Which of the following investors most likely has a portfolio perspective in his investment strategy? I) Investor A has been investing in the shares of Max Mart for the last 10 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 and 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 51 Which of the following statements concerning risk assembling activities is most likely an example of risk budgeting? A The portfolio must not include more than 55% of equities and 45% of real assets B The beta of the portfolio must not be above 0.85 C The portfolio must invest 50% of its funds in value stocks and 50% in fixed assets with maturities longer than 3-years 52 Two 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 B B -0.2% and -10.6% respectively - Portfolio B has performed better than A C 8.2% and 10.6% respectively - Portfolio B has performed better than A © 2019 AnalystPrep.com All rights reserved 53 Shares of Fition Corp are trading at $67 today, while analysts expect the price of the shares to reach $72 in year, and pay a dividend of $1.5 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 54 Which of the following are most likely components of an Investment Policy Statement (IPS)? I Duties and responsibilities of the investment manager II Procedures to update the IPS III Investment expertise of the investment manager A I & II only B I & III only C I, II & III 55 The expected return of a portfolio is 17%, and the return on risk-free assets is 8% The 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 12.50% 56 The 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 © 2019 AnalystPrep.com All rights reserved ... Standard Deviation (%) A 25.5 Beta 1. 8 B 31. 8 0.6 C 19 .4 1. 2 Out of the three manufacturers, the highest total risk is equal to: A 0.065 B 0 .10 1 C 0. 318 © 2 019 AnalystPrep.com All rights reserved... of a portfolio is 17 %, and the return on risk-free assets is 8% The beta of the portfolio is 1. 2, and the standard deviation of the portfolio is 5.5% Assuming that an investor invests 11 5% of... 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