Open App

CFA Level 2 Exam > CFA Level 2 Test > Portfolio Management > Practice Test: Portfolio Management - 2 - CFA Level 2 MCQ

Portfolio Management - 2 - Free MCQ Practice Test with solutions, CFA Level

MCQ Practice Test & Solutions: Practice Test: Portfolio Management - 2 (30 Questions)

You can prepare effectively for CFA Level 2 Portfolio Management with this dedicated MCQ Practice Test (available with solutions) on the important topic of "Practice Test: Portfolio Management - 2". These 30 questions have been designed by the experts with the latest curriculum of CFA Level 2 2026, to help you master the concept.

Test Highlights:

- Format: Multiple Choice Questions (MCQ)
- Duration: 80 minutes
- Number of Questions: 30

Practice Test: Portfolio Management - 2 - Question 1

An analyst is estimating the expected return for a small-cap value equity fund using the Fama-French three-factor model. The following data are available:
Risk-free rate (R_f): 3.0%
Market risk premium (R_m − R_f): 6.0%
SMB factor premium: 2.5%
HML factor premium: 3.0%
Market beta (β_mkt): 1.20
SMB beta (β_SMB): 0.40
HML beta (β_HML): −0.30
The expected return for the fund is closest to:

A. 10.3%
B. 12.1%
C. 9.3%

Detailed Solution: Question 1

E(R) = 3 + 1.2(6) + 0.4(2.5) + (-0.3)(3) = 3 + 7.2 + 1.0 - 0.9 = 10.3%

Practice Test: Portfolio Management - 2 - Question 2

A portfolio manager is reviewing factor model literature and comparing the Fama-French three-factor model with the Carhart four-factor model. The manager notes that one of the models captures a well-documented return anomaly related to the persistence of prior price trends.
The Carhart model most accurately extends the Fama-French model by adding:

A. A liquidity factor that captures the return premium associated with holding illiquid small-capitalization securities
B. A profitability factor that differentiates firms with high operating profits from those with low operating profits
C. A momentum factor (WML) constructed as long positions in prior 12-month return winners and short positions in prior 12-month return losers

Detailed Solution: Question 2

Carhart adds the momentum factor (WML: winners minus losers based on prior 12-month returns) to the three Fama-French factors.

Join for Free

Practice Test: Portfolio Management - 2 - Question 3

A performance analyst collects the following annual return data for an actively managed fund and its benchmark:
Year Fund Return Benchmark Return
1 14.0% 11.0%
2 8.0% 10.0%
3 16.0% 12.0%
Using a sample standard deviation for tracking error, the fund's information ratio is closest to:

Year	Fund Return	Benchmark Return
1	14.0%	11.0%
2	8.0%	10.0%
3	16.0%	12.0%

A. 0.52
B. 0.64
C. 1.67

Detailed Solution: Question 3

Active returns: 3%, -2%, 4%. Mean = 1.67%. Sample SD (TE) = 3.21%. IR = 1.67/3.21 = 0.52.

Practice Test: Portfolio Management - 2 - Question 4

An analyst at a quantitative investment firm implements the Black-Litterman model. The analyst assigns a highly confident, strongly bullish absolute return view on a domestic technology sector ETF, deviating substantially from the market equilibrium implied return for that asset.
The most likely outcome of incorporating this high-confidence bullish view in the Black-Litterman framework is that:

A. The expected return of the asset remains anchored at the market equilibrium implied return because the Black-Litterman model always defaults to market-cap weighting
B. The expected return of the asset decreases because the model applies a penalty to views that deviate significantly from the equilibrium implied return
C. The expected return of the asset tilts strongly toward the investor's view and the portfolio weight increases above the market-cap weight, with magnitude proportional to view confidence

Detailed Solution: Question 4

High-confidence bullish view pulls expected return strongly toward the investor's view, increasing the asset's portfolio weight above market-cap weight.

Practice Test: Portfolio Management - 2 - Question 5

A trading desk supervisor is reviewing execution quality metrics. She asks a junior analyst to explain the concept of implementation shortfall as defined under the CFA Institute curriculum.
Implementation shortfall is best described as:

A. The difference between the return on a hypothetical paper portfolio valued at the investment decision price and the return on the actual executed portfolio, capturing all explicit and implicit trading costs
B. The difference between the volume-weighted average price of a security and the actual average execution price achieved by the trading desk over the order period
C. The total brokerage commissions and exchange fees paid on a transaction, expressed as a basis point cost relative to the notional trade value

Detailed Solution: Question 5

Implementation shortfall = paper portfolio return (at decision price) minus actual portfolio return, capturing total cost of trading.

Practice Test: Portfolio Management - 2 - Question 6

A portfolio manager decides to purchase 1,000 shares of a stock at the investment decision price of $50.00 per share. Due to market conditions, the order is executed for only 800 shares at an average price of $50.60 per share, with a commission of $0.05 per share. At the end of the day, the stock closes at $52.00 per share. The remaining 200 shares are not purchased.
The implementation shortfall as a percentage of the paper portfolio value is closest to:

A. 1.84%
B. 1.76%
C. 0.96%

Detailed Solution: Question 6

Paper gain = (52-50)×1000 = $2,000. Actual net = (52-50.60)×800 - 0.05×800 = $1,120 - $40 = $1,080. IS = $920/$50,000 = 1.84%.

Practice Test: Portfolio Management - 2 - Question 7

An institutional portfolio manager is responsible for liquidating a position of 500,000 shares in a mid-cap stock. Average daily trading volume for the stock is approximately 1,600,000 shares, meaning the order represents about 31% of daily volume. The trading desk is evaluating whether to use VWAP or implementation shortfall as the execution benchmark.
Regarding the appropriateness of VWAP as the execution benchmark in this scenario, which of the following statements is most accurate?

A. VWAP is the most appropriate benchmark because large institutional orders benefit from high intraday volume concentration that naturally aligns with the VWAP calculation period
B. VWAP is appropriate here because it captures the opportunity cost of delayed execution better than implementation shortfall for large block trades
C. VWAP is least appropriate because an order representing approximately 31% of daily volume will itself influence the VWAP benchmark, making it easier to achieve and reducing its usefulness as an independent benchmark

Detailed Solution: Question 7

Large orders representing significant daily volume distort VWAP benchmark; the order itself influences the benchmark, artificially making it easier to match.

Practice Test: Portfolio Management - 2 - Question 8

A US-based portfolio manager holds EUR-denominated bonds with a current market value of EUR 10,000,000. The spot USD/EUR exchange rate is 1.10. The manager wishes to hedge 80% of the currency exposure using 3-month currency forward contracts.
To implement this partial hedge, the manager should:

A. Sell EUR 8,000,000 forward to convert 80% of the EUR exposure into USD at the forward rate
B. Sell EUR 10,000,000 forward to fully eliminate all currency exposure before partially unwinding the hedge
C. Buy EUR 8,000,000 forward to increase the effective EUR exposure of the portfolio

Detailed Solution: Question 8

Hedge = 80% × EUR 10M = EUR 8M. Sell EUR forward to lock in USD value and reduce EUR exposure.

Practice Test: Portfolio Management - 2 - Question 9

A fixed-income portfolio manager is tasked with immunizing a pension fund's single liability of $50 million due in seven years. The manager selects a portfolio of coupon-paying bonds. After initial construction, the manager receives a research note stating that simply matching the portfolio's modified duration to the liability duration is insufficient for immunization.
Which additional condition must the portfolio satisfy to achieve robust single-liability immunization?

A. The portfolio must hold only zero-coupon bonds maturing exactly on the liability date, eliminating all reinvestment risk
B. The present value of assets must equal the present value of the liability, durations must match, and asset convexity must be at least as large as liability convexity to provide protection against larger yield curve shifts
C. The portfolio must maintain a yield-to-maturity equal to the liability discount rate regardless of changes in the shape of the yield curve

Detailed Solution: Question 9

Single-liability immunization: match PV and duration, AND ensure asset convexity ≥ liability convexity to protect against large yield changes.

Practice Test: Portfolio Management - 2 - Question 10

A risk manager is decomposing the sources of portfolio risk for a two-asset portfolio. Asset A has a portfolio weight of 60% and a beta relative to the total portfolio of 1.20. Asset B has a weight of 40% and a beta of 0.60. The portfolio standard deviation is 12.0%.
Asset A's percentage contribution to total portfolio risk is closest to:

A. 60%
B. 80%
C. 75%

Detailed Solution: Question 10

MCTR_A = 1.2×12% = 14.4%. Contribution_A = 0.6×14.4% = 8.64%. Total contributions: 8.64%+2.88%=11.52%. % = 8.64/11.52 = 75%.

Practice Test: Portfolio Management - 2 - Question 11

A chief investment officer is constructing a risk budgeting framework for the fund's active equity allocation. She is evaluating whether to use the Arbitrage Pricing Theory (APT) framework to identify factor exposures and allocate active risk across those factors.
Which characteristic of APT best justifies its use in a risk budgeting framework compared to a single-factor CAPM approach?

A. APT assumes that all systematic risk is captured by a single market factor, simplifying the allocation of the entire active risk budget to one exposure
B. APT requires the market portfolio to be mean-variance efficient, providing a theoretically rigorous anchor for determining the risk budget across all assets
C. APT decomposes returns into multiple systematic factor exposures, allowing active risk to be explicitly attributed and budgeted across individual factor bets such as value, size, and momentum

Detailed Solution: Question 11

APT decomposes returns into multiple systematic factors, enabling risk attribution and budgeting across each factor exposure separately.

Practice Test: Portfolio Management - 2 - Question 12

A quantitative analyst is presenting the Black-Litterman model to the investment committee. A committee member asks: “If we input no investor views at all, what portfolio does the model recommend?”
Without any investor views, the Black-Litterman model recommends:

A. The global minimum variance portfolio, derived solely from the asset covariance matrix with no consideration of expected returns
B. An equally weighted portfolio across all assets, reflecting maximum uncertainty about relative expected returns
C. The market-capitalization weighted portfolio, as the implied equilibrium returns produce the market portfolio as the optimal mean-variance solution

Detailed Solution: Question 12

Without views, BL returns to market equilibrium implied returns, producing the market-cap weighted portfolio as optimal.

Practice Test: Portfolio Management - 2 - Question 13

A researcher runs a Fama-French three-factor regression for a domestic large-cap growth mutual fund using 36 months of return data. The regression output is as follows:
Coefficient Estimate t-statistic
Alpha (α) 0.18% 0.92
Market Beta (β_mkt) 0.95 12.40
SMB coefficient 0.55 2.31
HML coefficient −0.48 −2.65
The critical t-value at the 5% significance level (two-tailed) is 1.96. Based solely on this output, which of the following conclusions is most accurate?

Coefficient	Estimate	t-statistic
Alpha (α)	0.18%	0.92
Market Beta (β_mkt)	0.95	12.40
SMB coefficient	0.55	2.31
HML coefficient	−0.48	−2.65

A. The fund generates statistically significant positive alpha and displays a large-cap growth tilt based on the SMB and HML factor loadings
B. The alpha is not statistically significant at the 5% level, and the fund exhibits a small-cap growth tilt based on the statistically significant positive SMB and negative HML coefficients
C. All four regression coefficients are statistically significant at the 5% level, indicating the fund earns abnormal returns after controlling for the three systematic risk factors

Detailed Solution: Question 13

Alpha t=0.92 < 1.96:="" insignificant.="" smb="" t="2.31"> 1.96: positive (small-cap tilt). HML t=-2.65: negative (growth tilt). Market beta significant.

Practice Test: Portfolio Management - 2 - Question 14

A multi-asset class portfolio manager is evaluating whether to use the Fama-French three-factor model or a commercial BARRA (MSCI) multi-factor risk model for detailed portfolio risk decomposition and attribution. The portfolio contains positions across 12 industry sectors and 8 countries.
Which of the following statements best describes the key distinction between the two approaches in this context?

A. The Fama-French model is preferred for this portfolio because it includes country and industry factors that directly correspond to the portfolio's cross-sectional exposures
B. BARRA models are primarily used for academic research because they publish transparent, freely available factor return series that enable independent replication
C. BARRA models incorporate a larger number of factors including industry and country exposures, making them more suitable for granular portfolio risk decomposition than the parsimonious Fama-French three-factor model

Detailed Solution: Question 14

BARRA models incorporate industry, country, and numerous style factors, providing granular risk decomposition unsuited by the parsimonious Fama-French model.

Practice Test: Portfolio Management - 2 - Question 15

A portfolio manager holds a position in a foreign currency-denominated equity index fund and wishes to hedge the currency exposure using forward contracts. The correlation between changes in the spot exchange rate and changes in the forward rate is 0.92. The standard deviation of spot rate changes is 8.0% and the standard deviation of forward rate changes is 10.0%.
The minimum-variance hedge ratio is closest to:

A. 0.736
B. 0.920
C. 0.800

Detailed Solution: Question 15

Minimum-variance hedge ratio h* = ρ × (σ_spot / σ_forward) = 0.92 × (8.0/10.0) = 0.736.

Practice Test: Portfolio Management - 2 - Question 16

A defined-benefit pension fund currently has assets of $500 million and a present value of liabilities of $450 million, for a surplus of $50 million. The fund's asset portfolio has a modified duration of 5.0 years, while the liabilities have a modified duration of 12.0 years. Interest rates unexpectedly rise by 150 basis points across all maturities.
The most likely impact on the fund's surplus is:

A. The surplus will decrease because rising interest rates reduce the market value of all fixed-income assets held by the fund
B. The surplus will increase because the liabilities, having a higher duration than the assets, will decline in present value by more than the assets decline in market value
C. The surplus will remain unchanged because the pension fund's surplus is insulated from interest rate movements under standard liability-driven investing principles

Detailed Solution: Question 16

Rising rates reduce both PV of assets and liabilities. Liabilities fall more (higher duration), so surplus increases when asset duration < liability="" duration.="" liability="">

Practice Test: Portfolio Management - 2 - Question 17

A buy-side trader receives an order to purchase shares of a company. The investment decision is made when the stock is trading at $40.00. By the time the trader places the order, the price has moved to $40.50 (delay cost). The order is executed at $41.00 (reflecting market impact). Commission paid is $0.10 per share. The analysis covers a single share.
The decomposition of the total implementation shortfall per share is best described as:

A. Delay cost = $0.50, market impact cost = $0.50, and explicit cost = $0.10 per share, for a total implementation shortfall of $1.10 per share
B. Delay cost = $1.00, market impact cost = $0.10, and explicit cost = $0.00 per share, for a total implementation shortfall of $1.10 per share
C. Delay cost = $0.00, market impact cost = $1.00, and explicit cost = $0.10 per share, for a total implementation shortfall of $1.10 per share

Detailed Solution: Question 17

Delay cost = $40.50-$40.00=$0.50; market impact = $41.00-$40.50=$0.50; explicit cost = $0.10. Total IS = $1.10/share.

Practice Test: Portfolio Management - 2 - Question 18

A quantitative analyst is examining the factor exposures of a technology stock using the Carhart four-factor model. The stock ranked in the top decile of total returns over the prior 12 months (excluding the most recent month). The analyst is determining the sign and implication of the stock's momentum factor loading.
Under the Carhart model, this stock most likely has:

A. A negative momentum factor loading, as extreme prior winners are expected to mean-revert under the Carhart model's momentum specification
B. A positive momentum factor loading, reflecting its classification as a prior 12-month winner in the WML (winners minus losers) factor construction
C. A zero momentum factor loading, as the Carhart model assigns momentum factor exposure only to securities in the bottom return decile

Detailed Solution: Question 18

Top decile prior 12-month return = prior winner → positive WML (momentum) factor loading → positive momentum premium contribution.

Practice Test: Portfolio Management - 2 - Question 19

A chief investment officer has established a total active risk budget of 4.0% tracking error for the fund. The budget is currently allocated as follows: Manager A uses 2.5% tracking error with an information ratio of 0.80; Manager B uses 1.5% tracking error with an information ratio of 0.40. The CIO is reviewing whether the current allocation is optimal.
To improve the efficiency of the risk budget, the CIO should most likely:

A. Shift active risk budget from Manager B to Manager A, as Manager A generates a higher active return per unit of active risk consumed
B. Shift active risk budget from Manager A to Manager B, as Manager A already utilizes more than half the total active risk budget
C. Maintain the current allocation because the total risk budget is fully consumed and any reallocation would violate the stated 4.0% tracking error constraint

Detailed Solution: Question 19

IR_A=0.80 > IR_B=0.40; active risk should shift to Manager A to generate more active return per unit of risk consumed.

Practice Test: Portfolio Management - 2 - Question 20

An equity analyst is explaining to a client why economic value added (EVA) is a more appropriate performance measure than net income for assessing whether management is creating shareholder value. The client asks for a precise definition of EVA.
EVA is best defined as:

A. Net income minus dividends paid, representing the incremental value retained within the firm after distributing earnings to shareholders
B. Net operating profit after tax (NOPAT) minus a capital charge equal to the weighted average cost of capital multiplied by invested capital, measuring value created above the cost of all capital employed
C. EBITDA minus interest expense, representing the pre-tax operating cash flow available for distribution to equity holders after servicing debt obligations

Detailed Solution: Question 20

EVA = NOPAT - (WACC × Invested Capital). Charges cost of all capital including equity, unlike net income.

Practice Test: Portfolio Management - 2 - Question 21

A performance analyst evaluates an active fixed-income manager using three years of annual data. The active returns relative to the benchmark are: Year 1: +3.0%, Year 2: −2.0%, Year 3: +4.0%. The analyst computes the information ratio using the sample standard deviation of active returns as the tracking error estimate.
The information ratio is closest to:

A. 0.64
B. 1.67
C. 0.52

Detailed Solution: Question 21

Mean active return = 1.67%. Deviations: 1.33, -3.67, 2.33. Sum sq = 20.67. Sample var = 10.33. TE = 3.21%. IR = 1.67/3.21 = 0.52.

Practice Test: Portfolio Management - 2 - Question 22

A quantitative portfolio manager employs the Black-Litterman model, using Fama-French factor premia as inputs for the market equilibrium implied returns. The manager holds a high-conviction view that small-cap stocks will outperform large-cap stocks over the next six months and incorporates this as a positive relative view on the SMB factor.
The most likely impact on the resulting portfolio is that:

A. The portfolio tilts toward small-cap stocks above market-cap weights, with the magnitude of the tilt determined by the confidence level assigned to the SMB view
B. The portfolio eliminates all large-cap holdings entirely because the positive SMB view overrides the market equilibrium for all size-related exposures
C. The model rejects the SMB view because Black-Litterman accommodates only absolute return views on individual assets, not relative factor-based views

Detailed Solution: Question 22

BL tilts portfolio toward small-cap above market-cap weights; magnitude depends on confidence assigned to the SMB view.

Practice Test: Portfolio Management - 2 - Question 23

A US-based investment manager holds GBP-denominated corporate bonds with a market value of GBP 5,000,000. The current spot rate is USD/GBP 1.2500 and the 3-month forward rate is USD/GBP 1.2400. The manager decides to fully hedge the currency exposure using a 3-month forward contract.
To execute the hedge, the manager should:

A. Buy GBP 5,000,000 forward at 1.2400, locking in USD proceeds of $6,200,000 and eliminating downside currency risk
B. Sell GBP 5,000,000 forward at 1.2400, locking in USD proceeds of $6,200,000 and accepting a small hedging cost relative to the current spot rate
C. Sell USD 6,250,000 forward at the prevailing spot rate to synthetically replicate a full hedge of the GBP bond position

Detailed Solution: Question 23

Sell GBP 5M forward at 1.2400 to eliminate currency risk, locking in USD proceeds of $6.2M. GBP forward discount implies a small hedging cost.

Practice Test: Portfolio Management - 2 - Question 24

A candidate is reviewing the theoretical foundations of multifactor models. She notes that the Arbitrage Pricing Theory (APT) and the Capital Asset Pricing Model (CAPM) share some similarities but differ in important theoretical assumptions.
Which of the following statements best describes a key theoretical distinction of APT relative to CAPM?

A. APT requires the market portfolio to be mean-variance efficient and uses it as the single risk factor to price all assets in equilibrium
B. APT is grounded in the no-arbitrage condition and a factor structure for asset returns, and does not require the identification of a mean-variance efficient market portfolio
C. APT assumes a single systematic risk factor drives all asset returns, distinguishing it from multi-factor extensions such as the Fama-French model

Detailed Solution: Question 24

APT relies on no-arbitrage condition and factor structure only; does not require market portfolio to be mean-variance efficient, unlike CAPM.

Practice Test: Portfolio Management - 2 - Question 25

A corporate pension plan has a funding ratio of 1.15 (assets exceed liabilities by 15%). The investment committee is debating between implementing a full classical immunization strategy versus a surplus optimization approach under a liability-driven investing (LDI) framework.
The primary advantage of surplus optimization over classical immunization in this context is that surplus optimization:

A. Eliminates all interest rate risk by precisely matching asset and liability durations, thereby fully protecting the current surplus
B. Allows the overfunded plan to potentially improve its funding ratio by taking calibrated investment risk, whereas immunization only preserves the existing surplus without generating additional upside
C. Requires fewer total assets relative to the present value of liabilities, making it more capital-efficient than classical immunization strategies

Detailed Solution: Question 25

Surplus optimization allows the overfunded plan to take calibrated investment risk to potentially improve funding ratio; immunization only preserves the existing surplus.

Practice Test: Portfolio Management - 2 - Question 26

A factor-based portfolio manager reports an active return of 2.40% over the benchmark. An attribution analyst decomposes this active return and finds that 1.80% is attributable to systematic factor tilts (value, size, and momentum exposures), while the remaining 0.60% cannot be explained by factor exposures.
Under alpha decomposition, the 0.60% unexplained component is best described as:

A. The total active return attributable to market beta, as the factor model separates systematic market exposure from all other active decisions
B. The return contribution from transaction costs and implementation drag, which reduces the gross active return to a net active return figure
C. The residual alpha attributable to pure security selection skill, representing the active return remaining after removing the contribution of systematic factor tilts

Detailed Solution: Question 26

Alpha decomposition: active return = factor tilt return + residual alpha. The 0.60% unexplained by factors is the pure security selection (residual) alpha.

Practice Test: Portfolio Management - 2 - Question 27

An analyst applies the Carhart four-factor model to estimate the expected return for a domestic equity portfolio. The following inputs are provided:
Risk-free rate: 2.0%
Market risk premium: 5.5%
SMB factor premium: 2.0%
HML factor premium: 3.0%
Momentum factor premium (WML): 4.0%
β_mkt = 1.10, β_SMB = 0.30, β_HML = −0.20, β_MOM = 0.50
The expected return is closest to:

A. 10.05%
B. 8.05%
C. 11.25%

Detailed Solution: Question 27

E(R) = 2 + 1.1(5.5) + 0.3(2) + (-0.2)(3) + 0.5(4) = 2 + 6.05 + 0.6 - 0.6 + 2.0 = 10.05%.

Practice Test: Portfolio Management - 2 - Question 28

A fixed-income portfolio manager is tasked with immunizing a portfolio against a stream of multiple pension liabilities occurring over the next 15 years. A colleague argues that simply matching the aggregate modified duration of the asset portfolio to the aggregate modified duration of the liability stream is sufficient for immunization.
The colleague's claim is incorrect because multiple-liability immunization also requires that:

A. The portfolio must consist exclusively of zero-coupon bonds with maturities corresponding exactly to each liability payment date
B. The present value of assets must equal the present value of liabilities, asset convexity must be at least as large as liability convexity, and the distribution of asset durations must span the range of liability durations
C. The portfolio's yield-to-maturity must be maintained above the discount rate applied to the liabilities at all times to generate sufficient cash flows

Detailed Solution: Question 28

Multiple-liability immunization requires PV match, duration match, AND asset convexity ≥ liability convexity. Duration match alone is insufficient.

Practice Test: Portfolio Management - 2 - Question 29

A trading consultant is advising an active equity fund on the choice between the volume-weighted average price (VWAP) benchmark and the implementation shortfall (IS) benchmark for evaluating trade execution quality. The fund executes a large number of high-conviction trades in response to timely investment signals that deteriorate quickly.
Which of the following statements best compares the two benchmarks for this fund?

A. VWAP is superior to implementation shortfall for this fund because it directly captures the opportunity cost of delayed execution from the investment decision price
B. Implementation shortfall is inferior to VWAP because it does not incorporate explicit commission costs, resulting in an incomplete measure of total trading cost
C. Implementation shortfall is superior to VWAP for this fund because it measures total trading cost from the investment decision price, capturing delay cost, market impact, and missed trade opportunity cost - all critical when trading on short-lived signals

Detailed Solution: Question 29

IS captures delay and opportunity cost from decision price, critical for time-sensitive signals. VWAP can be gamed and ignores decision timing.

Practice Test: Portfolio Management - 2 - Question 30

A risk manager is computing the percentage contribution to total portfolio risk for a specific asset using the risk budgeting framework. Asset X has a portfolio weight of 30% and a correlation with the total portfolio of 0.70. The total portfolio standard deviation is 15.0%.
The percentage contribution of Asset X to total portfolio risk is closest to:

A. 10.5%
B. 21.0%
C. 30.0%

Detailed Solution: Question 30

MCTR_X = ρ × σ_P = 0.70 × 15% = 10.5%. Contribution = 0.30 × 10.5% = 3.15%. % of total = 3.15%/15.0% = 21%.

	Portfolio Management 12 docs\|3 tests

Portfolio Management

12 docs|3 tests

Join Course

Information about Practice Test: Portfolio Management - 2 Page

In this test you can find the Exam questions for Practice Test: Portfolio Management - 2 solved & explained in the simplest way possible. Besides giving Questions and answers for Practice Test: Portfolio Management - 2, EduRev gives you an ample number of Online tests for practice

	Portfolio Management 12 docs\|3 tests

Portfolio Management

12 docs|3 tests

Join Course

About this CFA Level 2 Practice Test

This test contains 30 MCQs on Practice Test: Portfolio Management - 2 with detailed solutions for each question. It is part of the Portfolio Management course on EduRev, designed to align with the current CFA Level 2 syllabus. Each solution explains not just the correct answer but also gives you an understanding of the topic — not just to attempt the question but also help you prepare for the exam with practice.

Explore more CFA Level 2 Study Resources

If you found this Practice Test: Portfolio Management - 2 MCQ Test helpful, you can further enhance your CFA Level 2 preparation with in-depth courses on EduRev, for all the subjects and topics available in Portfolio Management course. The course offers:

Video Lectures: covering all the topics of Portfolio Management
Notes for Revision: offering revision notes, important questions, summaries, flashcards, cheatsheets & more for CFA Level 2 preparation
MCQ Test: variety of questions as per the pattern of CFA Level 2 exam

Signup to see your scores go up within 7 days!

Access 1000+ FREE Docs, Videos and Tests

Continue with Google

Takes less than 10 seconds to signup

Portfolio Management - 2 - Free MCQ Practice Test with solutions, CFA Level

MCQ Practice Test & Solutions: Practice Test: Portfolio Management - 2 (30 Questions)

A performance analyst collects the following annual return data for an actively managed fund and its benchmark:
Year Fund Return Benchmark Return
1 14.0% 11.0%
2 8.0% 10.0%
3 16.0% 12.0%
Using a sample standard deviation for tracking error, the fund's information ratio is closest to:

A trading desk supervisor is reviewing execution quality metrics. She asks a junior analyst to explain the concept of implementation shortfall as defined under the CFA Institute curriculum.
Implementation shortfall is best described as:

A US-based portfolio manager holds EUR-denominated bonds with a current market value of EUR 10,000,000. The spot USD/EUR exchange rate is 1.10. The manager wishes to hedge 80% of the currency exposure using 3-month currency forward contracts.
To implement this partial hedge, the manager should:

A quantitative analyst is presenting the Black-Litterman model to the investment committee. A committee member asks: “If we input no investor views at all, what portfolio does the model recommend?”
Without any investor views, the Black-Litterman model recommends:

An equity analyst is explaining to a client why economic value added (EVA) is a more appropriate performance measure than net income for assessing whether management is creating shareholder value. The client asks for a precise definition of EVA.
EVA is best defined as:

Portfolio Management

Portfolio Management

Top Courses for CFA Level 2

Schools

Competitive Exams

International Exams

Quick Links

About this CFA Level 2 Practice Test

Explore more CFA Level 2 Study Resources

Portfolio Management - 2 - Free MCQ Practice Test with solutions, CFA Level

MCQ Practice Test & Solutions: Practice Test: Portfolio Management - 2 (30 Questions)

A performance analyst collects the following annual return data for an actively managed fund and its benchmark:YearFund ReturnBenchmark Return114.0%11.0%28.0%10.0%316.0%12.0%Using a sample standard deviation for tracking error, the fund's information ratio is closest to:

A trading desk supervisor is reviewing execution quality metrics. She asks a junior analyst to explain the concept of implementation shortfall as defined under the CFA Institute curriculum.Implementation shortfall is best described as:

A US-based portfolio manager holds EUR-denominated bonds with a current market value of EUR 10,000,000. The spot USD/EUR exchange rate is 1.10. The manager wishes to hedge 80% of the currency exposure using 3-month currency forward contracts.To implement this partial hedge, the manager should:

A quantitative analyst is presenting the Black-Litterman model to the investment committee. A committee member asks: “If we input no investor views at all, what portfolio does the model recommend?”Without any investor views, the Black-Litterman model recommends:

An equity analyst is explaining to a client why economic value added (EVA) is a more appropriate performance measure than net income for assessing whether management is creating shareholder value. The client asks for a precise definition of EVA.EVA is best defined as:

Portfolio Management

Portfolio Management

Top Courses for CFA Level 2

About this CFA Level 2 Practice Test

Explore more CFA Level 2 Study Resources

A performance analyst collects the following annual return data for an actively managed fund and its benchmark:
Year Fund Return Benchmark Return
1 14.0% 11.0%
2 8.0% 10.0%
3 16.0% 12.0%
Using a sample standard deviation for tracking error, the fund's information ratio is closest to:

A trading desk supervisor is reviewing execution quality metrics. She asks a junior analyst to explain the concept of implementation shortfall as defined under the CFA Institute curriculum.
Implementation shortfall is best described as:

A US-based portfolio manager holds EUR-denominated bonds with a current market value of EUR 10,000,000. The spot USD/EUR exchange rate is 1.10. The manager wishes to hedge 80% of the currency exposure using 3-month currency forward contracts.
To implement this partial hedge, the manager should:

A quantitative analyst is presenting the Black-Litterman model to the investment committee. A committee member asks: “If we input no investor views at all, what portfolio does the model recommend?”
Without any investor views, the Black-Litterman model recommends:

An equity analyst is explaining to a client why economic value added (EVA) is a more appropriate performance measure than net income for assessing whether management is creating shareholder value. The client asks for a precise definition of EVA.
EVA is best defined as: