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Certificate in Investment Performance Measurement (CIPM)
Level I Exam | Latest Verified Questions and Detailed Answers
OVERVIEW DESCRIPTION
This Comprehensive set of multiple choice questions is designed for the CIPM
(Certificate in Investment Performance Measurement) Level I exam, a computer-based
test administered by the CFA Institute. The exam assesses foundational knowledge in
investment performance measurement, attribution, and ethical evaluation, preparing
candidates for roles in investment analytics, GIPS compliance, and portfolio
management. The curriculum covers five key topic areas: Performance Measurement,
Performance Attribution Analysis, Ethics and Professionalism, Portfolio Performance
Presentation, and Performance Evaluation and Appraisal.
Topic 1: Performance Measurement (35%)
QUESTION 1
A portfolio begins the year with a market value
of 500,000andendstheyearwithamarketvalueof500,000andendstheyearwithamar
ketvalueof550,000. During the year, it
earns 10,000individendsand10,000individendsand5,000 in interest, all reinvested.
What is the holding period return (HPR)?
A) 10.0%
B) 11.0%
C) 13.0%
CORRECT ANSWER: C) 13.0%
EXPERT RATIONALE: HPR = (Ending value – Beginning value + Income) / Beginning
value. (550,000–550,000–500,000 + 15,000)/15,000)/500,000 = 13%. Income is
added regardless of reinvestment.
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QUESTION 2
The time-weighted return (TWR) is most appropriate when:
A) The client controls the timing and size of external cash flows
B) The portfolio manager controls the timing and size of external cash flows
C) There are no external cash flows during the measurement period
CORRECT ANSWER: A) The client controls the timing and size of external cash flows
EXPERT RATIONALE: TWR removes the effect of external cash flows, isolating the
manager’s investment decisions. It is required when the manager has no control over
cash flows.
QUESTION 3
A portfolio begins the quarter with a market value
of 200,000.Onday45,theclientcontributes200,000.Onday45,theclientcontributes3
0,000. The portfolio value just before the contribution
is 210,000,andatquarterenditis210,000,andatquarterenditis259,200. What is the
time-weighted return?
A) 13.4%
B) 14.6%
C) 15.2%
CORRECT ANSWER: A) 13.4%
EXPERT RATIONALE: Subperiod 1 return = (210,000 – 200,000) / 200,000 = 5.0%.
Subperiod 2 return = (259,200 – 240,000) / 240,000 = 8.0%. TWR = (1.05)(1.08) – 1 =
13.4%.
QUESTION 4
A portfolio earns a 10% return in the first half of the year and a –5% return in the second
half. What is the annual time-weighted return?
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A) 4.5%
B) 5.0%
C) 2.5%
CORRECT ANSWER: A) 4.5%
EXPERT RATIONALE: Link geometrically: (1.10) × (0.95) = 1.045, minus 1 = 4.5%. Simple
average (2.5%) would be incorrect.
QUESTION 5
Which of the following statements about the money-weighted return (MWR) is correct?
A) MWR is always lower than the time-weighted return when there are large positive
cash flows before a period of strong performance
B) MWR is the internal rate of return (IRR) that equates the beginning value and all cash
flows to the ending value
C) MWR eliminates the impact of external cash flows, making it the preferred measure
for manager evaluation
CORRECT ANSWER: B) MWR is the internal rate of return (IRR) that equates the
beginning value and all cash flows to the ending value
EXPERT RATIONALE: MWR is the discount rate that makes the present value of all cash
inflows/outflows and ending value equal to the initial investment. It is dollar-weighted
and reflects the timing of cash flows.
QUESTION 6
A portfolio starts the year with a value of €1,000,000. At mid-year the client adds
€200,000 when the portfolio value is €1,100,000. The year-end value is €1,300,000. What
is the annual Modified Dietz return?
A) 8.3%
B) 9.1%
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C) 10.0%
CORRECT ANSWER: B) 9.1%
EXPERT RATIONALE: Modified Dietz = (1,300,000 – 1,000,000 – 200,000) / (1,000,000 +
0.5 × 200,000) = 100,,100,000 ≈ 9.09%.
QUESTION 7
Under the Global Investment Performance Standards (GIPS), which method of return
calculation is required?
A) Money-weighted return
B) Time-weighted return
C) Linked internal rate of return
CORRECT ANSWER: B) Time-weighted return
EXPERT RATIONALE: GIPS require time-weighted returns because they eliminate the
effect of external cash flows, allowing for fair comparison of manager performance.
QUESTION 8
Which of the following is a key characteristic of a valid benchmark?
A) It can be changed retrospectively to better reflect the manager’s current style
B) It is unambiguous, investable, and measurable
C) It must be a broad market index that includes all asset classes
CORRECT ANSWER: B) It is unambiguous, investable, and measurable
EXPERT RATIONALE: A valid benchmark should be specified in advance, unambiguous,
investable, measurable, appropriate, reflective of current investment opinions, and
accountable.
QUESTION 9
A total return index differs from a price return index because it:
Certificate in Investment Performance Measurement (CIPM)
Level I Exam | Latest Verified Questions and Detailed Answers
OVERVIEW DESCRIPTION
This Comprehensive set of multiple choice questions is designed for the CIPM
(Certificate in Investment Performance Measurement) Level I exam, a computer-based
test administered by the CFA Institute. The exam assesses foundational knowledge in
investment performance measurement, attribution, and ethical evaluation, preparing
candidates for roles in investment analytics, GIPS compliance, and portfolio
management. The curriculum covers five key topic areas: Performance Measurement,
Performance Attribution Analysis, Ethics and Professionalism, Portfolio Performance
Presentation, and Performance Evaluation and Appraisal.
Topic 1: Performance Measurement (35%)
QUESTION 1
A portfolio begins the year with a market value
of 500,000andendstheyearwithamarketvalueof500,000andendstheyearwithamar
ketvalueof550,000. During the year, it
earns 10,000individendsand10,000individendsand5,000 in interest, all reinvested.
What is the holding period return (HPR)?
A) 10.0%
B) 11.0%
C) 13.0%
CORRECT ANSWER: C) 13.0%
EXPERT RATIONALE: HPR = (Ending value – Beginning value + Income) / Beginning
value. (550,000–550,000–500,000 + 15,000)/15,000)/500,000 = 13%. Income is
added regardless of reinvestment.
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QUESTION 2
The time-weighted return (TWR) is most appropriate when:
A) The client controls the timing and size of external cash flows
B) The portfolio manager controls the timing and size of external cash flows
C) There are no external cash flows during the measurement period
CORRECT ANSWER: A) The client controls the timing and size of external cash flows
EXPERT RATIONALE: TWR removes the effect of external cash flows, isolating the
manager’s investment decisions. It is required when the manager has no control over
cash flows.
QUESTION 3
A portfolio begins the quarter with a market value
of 200,000.Onday45,theclientcontributes200,000.Onday45,theclientcontributes3
0,000. The portfolio value just before the contribution
is 210,000,andatquarterenditis210,000,andatquarterenditis259,200. What is the
time-weighted return?
A) 13.4%
B) 14.6%
C) 15.2%
CORRECT ANSWER: A) 13.4%
EXPERT RATIONALE: Subperiod 1 return = (210,000 – 200,000) / 200,000 = 5.0%.
Subperiod 2 return = (259,200 – 240,000) / 240,000 = 8.0%. TWR = (1.05)(1.08) – 1 =
13.4%.
QUESTION 4
A portfolio earns a 10% return in the first half of the year and a –5% return in the second
half. What is the annual time-weighted return?
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A) 4.5%
B) 5.0%
C) 2.5%
CORRECT ANSWER: A) 4.5%
EXPERT RATIONALE: Link geometrically: (1.10) × (0.95) = 1.045, minus 1 = 4.5%. Simple
average (2.5%) would be incorrect.
QUESTION 5
Which of the following statements about the money-weighted return (MWR) is correct?
A) MWR is always lower than the time-weighted return when there are large positive
cash flows before a period of strong performance
B) MWR is the internal rate of return (IRR) that equates the beginning value and all cash
flows to the ending value
C) MWR eliminates the impact of external cash flows, making it the preferred measure
for manager evaluation
CORRECT ANSWER: B) MWR is the internal rate of return (IRR) that equates the
beginning value and all cash flows to the ending value
EXPERT RATIONALE: MWR is the discount rate that makes the present value of all cash
inflows/outflows and ending value equal to the initial investment. It is dollar-weighted
and reflects the timing of cash flows.
QUESTION 6
A portfolio starts the year with a value of €1,000,000. At mid-year the client adds
€200,000 when the portfolio value is €1,100,000. The year-end value is €1,300,000. What
is the annual Modified Dietz return?
A) 8.3%
B) 9.1%
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C) 10.0%
CORRECT ANSWER: B) 9.1%
EXPERT RATIONALE: Modified Dietz = (1,300,000 – 1,000,000 – 200,000) / (1,000,000 +
0.5 × 200,000) = 100,,100,000 ≈ 9.09%.
QUESTION 7
Under the Global Investment Performance Standards (GIPS), which method of return
calculation is required?
A) Money-weighted return
B) Time-weighted return
C) Linked internal rate of return
CORRECT ANSWER: B) Time-weighted return
EXPERT RATIONALE: GIPS require time-weighted returns because they eliminate the
effect of external cash flows, allowing for fair comparison of manager performance.
QUESTION 8
Which of the following is a key characteristic of a valid benchmark?
A) It can be changed retrospectively to better reflect the manager’s current style
B) It is unambiguous, investable, and measurable
C) It must be a broad market index that includes all asset classes
CORRECT ANSWER: B) It is unambiguous, investable, and measurable
EXPERT RATIONALE: A valid benchmark should be specified in advance, unambiguous,
investable, measurable, appropriate, reflective of current investment opinions, and
accountable.
QUESTION 9
A total return index differs from a price return index because it:
