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CA Final Asset Allocation — practice questions

Explore 56 free Asset Allocation questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Asset Allocation questions and exercises with answers

Showing questions 1–30 of 56.

What does asset allocation mainly try to balance in a portfolio?Read the answer and worked solution →Which three assets are the traditional asset classes?Read the answer and worked solution →Which strategy keeps a fixed long-term asset mix whatever the economic conditions?Read the answer and worked solution →A portfolio holds a large strategic core plus a smaller tactical slice. What is this called?Read the answer and worked solution →Which holding counts as a cash equivalent in asset allocation?Read the answer and worked solution →Which of these is treated as an alternative asset rather than a traditional one?Read the answer and worked solution →Why does diversification across asset classes reduce portfolio risk?Read the answer and worked solution →Diversification across asset classes can reduce volatility but cannot do what?Read the answer and worked solution →Diversification has been called what in the investment game?Read the answer and worked solution →What is a key weak link of mean-variance asset allocation built from past data?Read the answer and worked solution →The 1986 BHB study of 91 pension funds found what linear correlation with index returns?Read the answer and worked solution →In the BHB study, what shared variance did the 1974 to 1983 data show?Read the answer and worked solution →For 94 US balanced funds, Ibbotson and Kaplan found shared variance of about what?Read the answer and worked solution →Statman's hypothetical advisor with perfect tactical foresight gained how much per year?Read the answer and worked solution →Of funds in the top quartile in 1983 to 1993, what share stayed there in 1993 to 2003?Read the answer and worked solution →According to Bogle's examination of large-cap blend funds, which was the more reliable indicator of performance?Read the answer and worked solution →The global market portfolio realised what compounded real return from 1960 to 2017?Read the answer and worked solution →Which is a stated reason asset allocation can fail in practice?Read the answer and worked solution →Frequent rebalancing of an asset mix can hurt returns mainly because of what?Read the answer and worked solution →A portfolio is 60% in stocks returning 10% and 40% in bonds returning 5%. What is its expected return?Read the answer and worked solution →Two assets with equal risk are held 50:50 with correlation of exactly -1 and equal weights. What is portfolio risk?Read the answer and worked solution →Who developed the Sharpe ratio, and in which year?Read the answer and worked solution →The Sharpe ratio is the excess return over the risk-free rate divided by what?Read the answer and worked solution →A portfolio returns 12% with standard deviation 10% while the risk-free rate is 5%. What is its Sharpe ratio?Read the answer and worked solution →What does a negative Sharpe ratio show?Read the answer and worked solution →Which ratio uses another, typically risky, index as benchmark instead of the risk-free rate?Read the answer and worked solution →Why can a Ponzi scheme show a high Sharpe ratio until it collapses?Read the answer and worked solution →Which statement about Sharpe and Treynor ratios is correct?Read the answer and worked solution →Which weakness is cited for the Sharpe ratio in evaluating funds?Read the answer and worked solution →The Treynor ratio measures excess return per unit of which risk?Read the answer and worked solution →

Worked practice questions

What does asset allocation mainly try to balance in a portfolio?

  1. Cost versus price
  2. Tax versus revenue
  3. Risk versus reward
  4. Debt versus equity only
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Correct answer: C. Risk versus reward

It sets the percentage of each asset so that risk and reward are balanced for the investor's goals.

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Which three assets are the traditional asset classes?

  1. Gold, art and land
  2. Stocks, bonds and cash
  3. Futures, swaps and options
  4. Stocks, REITs and coins
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Correct answer: B. Stocks, bonds and cash

Stocks, bonds and cash form the starting point of any allocation, with other holdings treated as alternatives.

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Which strategy keeps a fixed long-term asset mix whatever the economic conditions?

  1. Tactical allocation
  2. Dynamic allocation
  3. Core-satellite allocation
  4. Strategic allocation
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Correct answer: D. Strategic allocation

Strategic allocation is agnostic to the economic environment, so the mix is not changed with market conditions.

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