CFA Investment Foundations C17

Systematic risk is the portion of total risk that: is related to a certain company or security. is created by general economic conditions. results from a lack of portfolio diversification.

An investor currently owns a portfolio of five securities. If the investor adds another security to the portfolio that is less than perfectly positively correlated with the other five securities, the portfolio’s: total risk will likely increase. specific risk will likely decrease. systematic risk will likely decrease.

The benefits of risk reduction are most likely to be greater by combining securities whose expected returns have a: low correlation. perfectly positive correlation. high, but less than perfect, correlation.

The long-term mix of assets that is expected to meet an investor’s objectives best describes: diversification. tactical asset allocation. strategic asset allocation.

The act of an investment manager adjusting his or her portfolio to take advantage of short-term fluctuations in asset class returns most likely describes: rebalancing. tactical asset allocation. strategic asset allocation.

Which of the following statements best describes passive management? Passive investment managers: attempt to outperform the benchmark. tend to earn higher returns than the benchmark. seek to match the risk and return of the benchmark.

Active investment managers are more likely than passive investment managers to: try to time a market. use strategic asset allocation. seek to minimise tracking error.

Active investment management is most likely to be favoured over passive management: for real estate investments. when markets are informationally efficient. when transaction costs are high.

The factor most likely to contribute to the success of active management is the: existence of trading costs. existence of inefficient markets. inability for active managers to consistently access better information than other investors.

Active managers that focus on sentiment to identify investment opportunities most likely use: behavioural analysis. quantitative analysis. fundamental analysis.

Analysts who review share price and trading volume trends in an effort to identify shares that might outperform are most likely: technical analysts. fundamental analysts. quantitative analysts.