Basics of Portfolio Planning and Construction practice questions

What to know

Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

How to practice

Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Portfolio Management

Basics of Portfolio Planning and Construction

Within a typical investment policy statement, the strategic asset allocation and the rebalancing policy are most likely presented in the:

Portfolio Management

Basics of Portfolio Planning and Construction

Chen Wei, a senior executive, may NOT trade shares of his employer during quarterly blackout windows and must obtain pre-clearance before any sale. In his investment policy statement, these restrictions are most appropriately classified under:

Portfolio Management

Basics of Portfolio Planning and Construction

Amara Diallo, a 30-year-old founder whose income depends entirely on her early-stage company, tells her adviser she wants an aggressive, equity-only portfolio. The adviser concludes that her volatile income and limited cash reserves give her a low ability to take risk. The adviser should most appropriately:

Portfolio Management

Basics of Portfolio Planning and Construction

The Solveig Future Fund invests exclusively in companies whose products advance renewable-energy generation and water conservation, selecting holdings specifically for exposure to those two areas. This ESG implementation approach is best described as:

Portfolio Management

Basics of Portfolio Planning and Construction

An investment policy statement contains two risk statements. Statement 1: 'The portfolio should NOT lose more than 12% of its value over any 12-month period, assessed at a 95% confidence level.' Statement 2: 'Annualized tracking risk relative to the policy benchmark should NOT exceed 3%.' These statements are best classified, respectively, as:

Portfolio Management

Basics of Portfolio Planning and Construction

In assessing financial risk tolerance, ability to take risk is best described as:

Portfolio Management

Basics of Portfolio Planning and Construction

A required cash withdrawal from the portfolio in six months is most likely classified in the IPS as a:

Portfolio Management

Basics of Portfolio Planning and Construction

Strategic asset allocation is best described as:

Portfolio Management

Basics of Portfolio Planning and Construction

Rebalancing is most accurately described as:

Portfolio Management

Basics of Portfolio Planning and Construction

An investment committee excludes companies with material revenue from tobacco and also directs managers to assess governance quality in security analysis. These instructions are most accurately described as:

Portfolio Management

Basics of Portfolio Planning and Construction

An investor has substantial wealth, stable income, a long time horizon, and low liquidity needs, but becomes very anxious during modest market declines. The adviser should most appropriately classify the investor as having:

Portfolio Management

Basics of Portfolio Planning and Construction

A foundation must distribute 5% of portfolio value each year to support grants. In the IPS, this required annual payout is most appropriately classified as a:

Portfolio Management

Basics of Portfolio Planning and Construction

A portfolio begins with a target allocation of 60% equity and 40% bonds and a value of 1,000,000. Equity rises 20% and bonds fall 5%. To rebalance to the original target weights, the manager should most likely:

Portfolio Management

Basics of Portfolio Planning and Construction

A client has a long time horizon and no near-term spending needs but says, "I will sell everything if the portfolio falls 5%." The IPS should most appropriately reflect:

Portfolio Management

Basics of Portfolio Planning and Construction

A portfolio's policy target for equities is 60% with a permitted range of 55% to 65%. After a market rally, equities rise to 64%. The manager leaves the allocation unchanged. This decision is most accurately described as:

Portfolio Management

Basics of Portfolio Planning and Construction

A client instructs the manager to invest only in companies with high ESG scores relative to industry peers, while keeping the benchmark universe otherwise intact. The implementation approach is best described as: