Portfolio Management Process & IPS Level 2 Q Bank – Complete Practice Questions with Answers

Portfolio Management Process and the IPS – Question Bank



Set 1 Questions

1. In order to optimize the risk and return of a portfolio an investor must: A. analyze the risk
return trade-off of all individual securities.
B. analyze the risk return trade-off of the portfolio as a whole because unsystematic risk can
be diversified away.
C. analyze the risk return trade-off of the portfolio as a whole because systematic risk can be
diversified away.

2. Which of the following is least likely a component of the planning stage in portfolio
management?
A. Attributing of portfolio returns.
B. Developing an IPS.
C. Analyzing objectives and constraints.

3. Which of the following is not a role of the investment policy statement?
A. To record the investment strategy and investment style of the portfolio manager.
B. To adhere to the investment objectives and constraints.
C. To allow portfolio managers to shift investment strategy whenever deemed feasible.

4. Which of the following is not a component of an investment policy statement? A. Client
description.
B. Duties and responsibilities of the portfolio manager.
C. Summary of past returns generated by the portfolio.

5. Which of the following statements about investment strategies is most likely true?
A. A passive investment strategy is highly responsive to changing market expectations.
B. Active management strategies involve generating excess risk-adjusted returns.
C. Index-tilting is an example of a passive strategy.

6. Gemma Mathews is an individual investor employing the services of Serbi Capital. She tells
the portfolio manager that her time horizon is short as she is well into her retirement period.
Which of the following is most likely a suitable strategic allocation for Gemma? A.
70% Equities, 30% Bonds.
B. 50% Equity, 30% Real Estate and 20% Bonds.
C. 20% Equity, 80% Bonds.

7. Which of the following most likely indicates a large risk appetite? A. Spending and
obligation exceed investment returns.
B. Short time horizon with low wealth levels.
C. Multiple alternate sources of income.




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, Portfolio Management Process and the IPS – Question Bank


8. Terra rFarma ris rin rher rearly rthirties rand rhas ra rstable, rwell-paying rjob rat ra rlarge
rmultinational rfirm. rShe rhas ra rportfolio rgifted rto rher rby rher rfather rwho ris rnow
rconcentrating ron rthe rfamily's rbusiness. rTerra ris rrisk raverse rand ris rnot rwilling rto rtake ra
rlarge ramount rof rrisk rin rher rportfolio. r
The rportfolio rmanager rshould rmost rlikely: r
A. assume ra rlow rrisk rtolerance. r
B. counsel rthe rinvestor rand rreach ra rresolution ron rthe rrisk robjective. r
C. assume ra rhigh rrisk rtolerance. r
r
9. John rCramer remploys rthe rservices rof rOptimaton rCapital rfor rmanaging rhis rportfolio.
rJohn's rprimary rconcern ris rthat rhe rshould rreceive ra rregular rincome rfrom rthe rportfolio.
rThe rportfolio rmanager's rmost rlikely rresponse rshould rbe rto: r
A. invest rin rstocks rthat roffer rregular rdividends rbut rlow rtotal rreturn. r
B. invest rin rstocks rthat roffer rthe rhighest rtotal rreturn rat ran racceptable rlevel rof rrisk. r
C. invest rin rstocks rthat rare rleast rrisky. r
r
10. Bob rWiley ris ra rsingle rfather rwith rtwo rchildren. rWiley rhas ra rsecure rjob rat ra rlarge
rmultinational rand rhas rmore rthan r30 ryears rleft rto rretirement. rHe rconstructs ran requity
rportfolio rfor rfinancing rhis rchildren's rcollege reducation rwho rwill rbe rentering rcollege rnext
ryear. rWhich rof rthe rfollowing rstatements ris rmost rlikely rcorrect? r
A. The rtime rhorizon ris rlong rand rrisky rsecurities rshould rbe rselected. r
B. The rtime rhorizon ris rlong rand rless rrisky rsecurities rshould rbe rselected. r
C. The rtime rhorizon ris rshort rand rless rrisky rsecurities rshould rbe rselected. r
r
11. With rrespect rto rthe rCode rof rEthics rand rStandards rof rProfessional rConduct, rCFA rInstitute
rmembers rand rcandidates rmust: r
A. recognize rwhere rit rmight rbe rnecessary rto rdeviate rfrom rthe rCode rof rEthics rand
rStandards rof rProfessional rConduct rif rit ris rin rthe rbest rinterest rof rthe rclient. r
B. discuss rwith rthe rinvestor rwhen rdeviating rfrom rStandards rof rProfessional rConduct rand
rdo rso ronly rif rhe rcan rjustify rthe rneed rto rdeviate rfrom rthe rstandards. r
C. ensure rcompliance rto rCode rof rEthics rand rStandards rof rProfessional rConduct rat rall
rtimes rand reducate rthe rclient rwhere rnecessary. r
r r
Set r1 rSolutions
r
1. B ris rcorrect. rAn rinvestor rmust ranalyze rthe rrisk rreturn rtrade-off rof rthe rportfolio ras ra
rwhole ras runsystematic rrisk rpertaining rto rindividual rinvestments rcan rbe rdiversified raway
rby rcombining rinvestments. rSection r3. rLO.a. r
r
2. A ris rcorrect. rReturn rattribution ris rnot rpart rof rthe rplanning rstage. rIt ris rdone rafter rthe
rportfolio rhas rbeen rconstructed rand rreturns rhave rbeen rmade. rSection r5.1. rLO.b. r r
r
3. C ris rcorrect. rThe rIPS racts ras ran rinvestment rguideline rfor rthe rparties rinvolved. rIt
rspecifies rthe rinvestment’s rgoals rand robjectives rand rmentions rthe rinvestment rstrategy.
rFurthermore, rit rdetails rthe rreporting, rrebalancing rand rinvestment rcommunication rformat




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