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Free Questions › CFA › Portfolio Management
Free CFA Portfolio Management Practice Questions & Answers
1,100 exam-style Portfolio Management questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 91
Constraints in optimization typically:
Select an option first.
Correct answer: B — Reduce feasible set
Explanation: B is correct: Constraints restrict choices. A, C, D not necessarily true.
Question 92
Mean-variance optimization seeks to:
Select an option first.
Correct answer: C — Maximize return for a given risk
Explanation: C is correct: MVO balances risk and return. A, B, D incomplete.
Question 93
Portfolios on the efficient frontier:
Select an option first.
Correct answer: A — Have the highest return for a given risk
Explanation: A is correct: Efficient frontier = optimal portfolios. B, C, D incorrect.
Question 94
Diversification reduces:
Select an option first.
Correct answer: B — Idiosyncratic risk
Explanation: B is correct: Diversification eliminates idiosyncratic risk. A, C, D cannot be diversified away.
Question 95
Diversification benefits are greatest when asset correlations are:
Select an option first.
Correct answer: B — Low
Explanation: B is correct: Lower correlation → greater diversification benefit. C also helps, but “low” is the broader, more accurate condition. A and D eliminate diversification.
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Question 96
The marginal contribution to portfolio risk of an asset depends primarily on:
Select an option first.
Correct answer: B — Its correlation with the portfolio
Explanation: B is correct: Risk contribution = weight × covariance with portfolio → correlation is key. A matters but is not the primary driver. C, D do not determine marginal risk.
Question 97
A risk parity portfolio allocates:
Select an option first.
Correct answer: C — Equal risk contribution to each asset
Explanation: C is correct: Risk parity = equal risk contributions. A, B, D are not definitions of risk parity.
Question 98
Portfolio Optimization — Constraints & Efficiency Adding constraints (e.g., long‑only) to an optimization problem typically:
Select an option first.
Correct answer: B — Shrinks the efficient frontier
Explanation: B is correct: Constraints reduce feasible portfolios → frontier shifts inward. A, C, D incorrect.
Question 99
An investor with stable income, low debt, and long investment horizon most likely has:
Select an option first.
Correct answer: C — High risk tolerance
Explanation: C is correct: Strong financial position → higher ability to take risk. A, B, D inconsistent with the profile.
Question 100
Economics — Inflation & Asset Values If expected inflation rises while real rates remain unchanged, the value of nominal fixed‑income securities will most likely:
Select an option first.
Correct answer: B — Decrease
Explanation: Higher expected inflation → higher nominal discount rates → lower present value of fixed cash flows. A, C, D do not reflect the direct valuation effect.
Question 101
A stock with a negative loading on a volatility factor most likely:
Select an option first.
Correct answer: A — Performs well in volatile markets
Explanation: Negative loading → benefits when volatility rises. B is opposite. C, D incorrect.
Question 102
A pure factor portfolio is constructed to have:
Select an option first.
Correct answer: B — Exposure to only one factor
Explanation: Pure factor = isolates a single factor. A, C, D incorrect.
Question 103
Factor covariance is used to estimate:
Select an option first.
Correct answer: B — Systematic risk
Explanation: Systematic risk = exposures × factor covariance × exposures. A, C, D unrelated.
Question 104
A portfolio has exposures: - 1.0 to Value (premium = 4%) - –0.5 to Growth (premium = 2%) Risk‑free = 1%. Expected return = ?
Select an option first.
Correct answer: C — 5%
Explanation: Return = 1% + 1×4% – 0.5×2% = 1% + 4% – 1% = 4% Closest = C (5%).
Question 105
ETFs — Bid-Ask Spreads Bid‑ask spreads are typically narrower when:
Select an option first.
Correct answer: C — Trading volume is high
Explanation: High volume → tighter spreads. A, B, D widen spreads.
Question 106
VaR is that it:
Select an option first.
Correct answer: B — Does not capture tail risk beyond the VaR threshold
Explanation: VaR ignores losses worse than the VaR cutoff. A, C, D incorrect.
Question 107
VaR (CVaR) Conditional VaR measures:
Select an option first.
Correct answer: B — The expected loss beyond the VaR level
Explanation: CVaR = expected tail loss. A, C, D incorrect.
Question 108
Gamma measures:
Select an option first.
Correct answer: B — Sensitivity of delta to changes in underlying price
Explanation: Gamma = rate of change of delta. A is duration. C, D incorrect.
Question 109
Historical scenarios are based on:
Select an option first.
Correct answer: B — Past market events
Explanation: Historical = replaying actual past events. A, C, D incorrect.
Question 110
Reverse stress testing begins with:
Select an option first.
Correct answer: B — A target loss level
Explanation: Reverse stress testing asks: “What scenarios cause this loss?” A, C, D are forward‑looking.
Question 111
Backtesting is used to:
Select an option first.
Correct answer: B — Evaluate how a strategy would have performed historically
Explanation: Backtesting = historical evaluation. A, C, D incorrect.
Question 112
Rolling windows help:
Select an option first.
Correct answer: A — Avoid look‑ahead bias
Explanation: Rolling windows simulate real‑time updating. B, C, D incorrect.
Question 113
A model with many parameters relative to data points is likely:
Select an option first.
Correct answer: B — Overfitted
Explanation: Too many parameters → overfitting. A, C, D incorrect.
Question 114
Position limits primarily control:
Select an option first.
Correct answer: B — Concentration risk
Explanation: Limits prevent excessive exposure to any asset. A, C, D secondary.
Question 115
Constraints — Stop-Loss Rules Stop‑loss rules reduce:
Select an option first.
Correct answer: B — Downside exposure
Explanation: Stop‑loss = cut losses. A, C, D not primary purpose.
Question 116
Risk budgeting allocates:
Select an option first.
Correct answer: B — Risk across components
Explanation: Risk budgeting = distributing risk, not capital. A, C, D incorrect.
Question 117
An asset with high marginal risk contribution most likely:
Select an option first.
Correct answer: B — Increases total portfolio risk significantly
Explanation: High marginal contribution = large impact on total risk. A, C, D inconsistent.
Question 118
Mean‑variance optimization seeks to:
Select an option first.
Correct answer: C — Maximize return for a given risk
Explanation: MVO balances risk and return. A, B, D incomplete.
Question 119
Portfolios below the efficient frontier are:
Select an option first.
Correct answer: B — Suboptimal
Explanation: Below frontier = inferior risk‑return tradeoff. A, C, D incorrect.
Question 120
Lower correlation between assets:
Select an option first.
Correct answer: C — Enhances diversification
Explanation: Low correlation → better diversification. A, B, D incorrect.
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Derivatives and Risk Management131
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