SECTION A
Answer ALL questions
Each question is worth 4 marks
Question 1
The most likely event to be successfully diversified away in a portfolio would be:
A. Business cycle risk.
B. Unanticipated inflation.
C. Unanticipated corporate loss.
D. Market risk.
Question 2
The most accurate characterization of the proper use of strategic asset allocation would be:
A. active investment strategies should be used instead of strategic asset allocation when the
portfolio manager believes he can exceed market returns.
B. market expectations determine the objectives and constraints of the investor, which
translate into strategic asset allocation.
C. forecasts of risk-return characteristics of asset classes included in the portfolio connect
market expectations to the objectives and constraints of the investor.
D. Passive investment strategies should be used instead of strategic asset allocation when
the investor has low willingness to take risk.
Question 3
Which of the following is LEAST likely to be considered one of the five main classes of
investment constraints?
A. Time horizon.
B. Willingness to accept risk.
C. Tax considerations.
D. Legal and regulatory factors.
BEAM036 Please Turn Over
Question 4
Which of the following is LEAST likely to represent a concern related to the impact of
algorithmic and high-frequency trading on securities markets?
A. Acceleration and accentuation of market movements.
B. The impact of unequal access to information.
C. Minimized market impact of large trades.
D. Additional load on trading venues.
Question 5
If the real GDP of country A is expected to grow fast in the future, the analyst should expect:
A. a negative relationship between real GDP growth and real default-free interest rates.
B. real default-free interest rates to be higher in country A.
C. real default-free interest rates to be lower in country A.
D. None of the above.
Question 6
Which of the following statements accurately compares macroeconomic models to
fundamental factor models? In contrast to fundamental factor models, macroeconomic
models:
A. develop sensitivities series first.
B. the constant term has no economic interpretation.
C. estimate factor sensitivities through regressions.
D. estimate factor series through regressions.
Question 7
Which of the following is a limitation of Value at Risk (VaR)?
A. VaR only focuses on downside risk.
B. Use of VaR is not recognized by banking regulators.
C. Estimates of VaR for different asset classes are not comparable.
D. VaR cannot be used ex-ante.
Question 8
Which of the following is LEAST likely to explain the home bias?
A. Domestic equities may provide a superior inflation hedge.
B. Extra taxes and transactions/information costs for foreign securities.
C. High cross-market correlation.
D. Institutional and legal restrictions on foreign investment.
Question 9
Which of the following measures is a relative measure?
A. Sharpe ratio
B. VaR
C. Information ratio
D. Volatility
