Portfolio Management, CFA Level 1

20 Questions | Total Attempts: 1884

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Portfolio Management, CFA Level 1

There are 20 questions in this test from the Portfolio Management section of the CFA Level 1 syllabus. You will get 30 minutes to complete the test.


Questions and Answers
  • 1. 
    • A. 

      If one stock doubles in price, the other will also double in price

    • B. 

      The rates of return tend to move in the same direction relative to their individual means

    • C. 

      The two stocks will create a perfectly diversified portfolio

  • 2. 
    • A. 

      Diversification benefits will be realized up to the point that they offset transactions costs

    • B. 

      Each investor can have a unique view of a security market line

    • C. 

      All securities will plot very close to the security market line

  • 3. 
    Which of the following is NOT considered a constraint when preparing an investment policy statement?
    • A. 

      Risk tolerance

    • B. 

      Time horizon

    • C. 

      Tax concerns

  • 4. 
    The expected rate of return is 2.5 times the 12% expected rate of return from the market. What is the beta if the risk-free rate is 6%?
    • A. 

      5

    • B. 

      4

    • C. 

      3

  • 5. 
    • A. 

      50%, 25%, 25%

    • B. 

      20%, 30%, 50%

    • C. 

      90%, 6%, 4%

  • 6. 
    Mike Palm, CFA, is an analyst with a large money management firm. Currently, Palm is considering the risk and return parameters associated with Alux, a small technology firm. After in depth analysis of the firm and the economic outlook, Palm estimates the following return probabilities:   If Palm's objective is to quantify the risk/return relationship for Alux using Markowitz portfolio theory, he will use which of the following as a measure of risk?
    • A. 

      Beta

    • B. 

      Standard deviation

    • C. 

      Semivariance

  • 7. 
    Beta is a measure of:
    • A. 

      Systematic risk

    • B. 

      Diversifiable risk

    • C. 

      Company-specific risk

  • 8. 
    An analyst has developed the following data for two companies, PNS Manufacturing (PNS) and InCharge Travel (InCharge). PNS has an expected return of 15 percent and a standard deviation of 18 percent. InCharge has an expected return of 11 percent and a standard deviation of 17 percent. PNS’s correlation with the market is 75 percent, while InCharge’s correlation with the market is 85 percent. If the market standard deviation is 22 percent, which of the following are the betas for PNS and InCharge?
    • A. 

      Beta of PNS: 0.66; Beta of InCharge: 0.61

    • B. 

      Beta of PNS: 1.10; Beta of InCharge: 0.92

    • C. 

      Beta of PNS: 0.61; Beta of InCharge: 0.66

  • 9. 
    In a two-asset portfolio, reducing the correlation between the two assets moves the efficient frontier in which direction?
    • A. 

      The frontier extends to the left, or northwest quadrant representing a reduction in risk while maintaining or enhancing portfolio returns

    • B. 

      The efficient frontier is stable unless return expectations change. If expectations change, the efficient frontier will extend to the upper right with little or no change in risk

    • C. 

      The efficient frontier is stable unless the asset’s expected volatility changes. This depends on each asset’s standard deviation

  • 10. 
    The expected market premium is 8%, with the risk-free rate at 7%. What is the expected rate of return on a stock with a beta of 1.3?
    • A. 

      17.4%

    • B. 

      16.3%

    • C. 

      17.1%

  • 11. 
    • A. 

      Return objectives should be considered in conjunction with risk preferences

    • B. 

      Return objectives may be stated in percentages

    • C. 

      Return-only objectives provide a more concise and efficient way to measure performance for investment managers

  • 12. 
    Which of the following is the vertical axis intercept for the Capital Market Line (CML)?
    • A. 

      Expected return on the market

    • B. 

      Risk-free rate

    • C. 

      Efficient frontier

  • 13. 
    Investor’s expectation of additional return to balance for returns uncertainty is known as
    • A. 

      Risk premium

    • B. 

      Risk free rate

    • C. 

      Risk adjusted return

  • 14. 
    If two stocks have positive co-relation, which of the following statements is TRUE?
    • A. 

      If one stock shows 50% price variation, the other will move by 50%

    • B. 

      The rates of return will move in the same direction

    • C. 

      Portfolio of these two stocks only will be perfectly diversified portfolio

  • 15. 
    Developing an investment strategy is least likely to be based on I. Current and expected financial market II. Current and expected macro economic conditions
    • A. 

      II only

    • B. 

      I Only

    • C. 

      None of the given

  • 16. 
    What is correct regarding capital preservation of a portfolio management
    • A. 

      Nominal rate of return must exceed the rate of inflation

    • B. 

      Nominal rate of return must equal the inflation rate

    • C. 

      Nominal rate of return must be less than the rate of inflation

  • 17. 
    What is least likely to be correct regarding Systematic risk
    • A. 

      It is measured by alpha

    • B. 

      It cannot be reduced through diversification

    • C. 

      It is a risk of collapse of an entire financial market

  • 18. 
    What is most likely to be correct regarding policy statement outlines?
    • A. 

      It states the return percentage to be given to the investors

    • B. 

      It defines investors’ objectives and constraints

    • C. 

      It limits the stocks, which portfolio manager will invest into

  • 19. 
    Calculate marginal tax rate if Equivalent taxable yield is = 9.5% and Municipal Yield is 6.2%
    • A. 

      34.74%

    • B. 

      35.75%

    • C. 

      33.3%

  • 20. 
    • A. 

      Generally Capital preservation is for investors who seeks return over long term, whereas Capital appreciation is for investors who seeks return over short term

    • B. 

      Generally Capital preservation is for investors who seeks return over short term, whereas Capital appreciation is for investors who seeks return over long term

    • C. 

      Investors who opt for capital preservation or capital appreciation, time horizon is irrelevant