Q.1 Which of the following statements isincorrectregarding Bucket based asset allocation?

A. Allocation of assets within each bucket can be done either through a quantitative methodology or a qualitative methodology which considers the inherent nature of each asset that is considered to be included in the portfolio

B. A "Three Bucket" based asset allocation allows for better allocation of risk than a Risk Parity portfolio, since portfolio managers can choose the level of risk allocation or types of investments to each bucket.

C. Investors are able to change allocation of assets within, and across, each bucket based on changes in investment objectives.

D. Allocation to each bucket in a "Three Bucket" asset allocation is based on investors' investment objectives.

E. Asset allocation based on "Three Buckets" is inferior to Mean-Variance allocation that uses historical risk, return and correlation for each asset since the MV framework is backed by a sound theoretical framework.

Q.2 Consider an investor who wishes to invest 40% allocation to defensive investments and 60% allocation to growth investments. The investor has worked out the forecasted volatility, expected return and correlation between the two types of investments as below:

Investment: Defence, Growth

Volatility: Defence:6% per annum, Growth :18% per annum

Return: Defence: 5% per annum, Growth: 11% annum

Calculate the return and volatility of the portfolio.

Q.3 Which of the following statements isincorrectregarding international diversification?International diversification should consider the type and weighting of industry sectors in each market.

A. International diversification leads to better improvements inthe efficient frontier for investors in developing economies than for investors in developed economies.

B. International diversification improves the efficient frontier for investors in both developed and developing economies.

C. International diversification across equities fails during market downturns.

D. International diversification across sectors or across markets provides similar improvement in the efficient frontier.

Q.4 Based on the following historical risk, return and correlation, which of the following assets is least likely to be allocated in a portfolio with the investment objective of a required return of 7% per annum and the volatility of the portfolio to be minimised?

The constraints are that no asset can have a negative weight or a weight above 100%.

Assets: Asset 1 Asset 2 Asset 3 Asset 4

Return:4%,6%, 8%, 10% respectively

Volatility:5%, 9%,13%, 18% respectively

A. Asset 1

B. Asset 4

C. Asset 3

D. Asset 2

E. Not enough information provided to select the asset least likely to be selected in a portfolio

Q.5 Which of the following issuesleastimpacts the implementation negatively of a Mean Variance framework to create a in the real world?

Government bond or Treasury Bill rates provide a reasonable estimate of future risk free rates for a desired investment horizon.

A. Some investments do not trade on a daily basis and should be dropped when constructing an asset allocation.

B.Restricted investments, investments that are not accessible by investors from a certain market, should not be considered when constructing an asset allocation.

C. The historical correlation between each asset in the portfolio is easy to calculate but estimating future correlation each asset and another asset in the portfolio is difficult to forecast

D. The historical return for each asset is easy to calculate but estimating future returns are difficult to forecast

Q.6 The reasons for creating a Strategic Asset Allocation for retail investors based on allocating risk rather than on allocating returns include all of the following,except:

A. Historical volatility is a good measure/predictor of future volatility of each asset in the portfolio

B.Creating an SAA based on optimising returns against risk may not allocate to investments that are important in a portfolio

C. Retail investors better understand their desired level of volatility rather than their desired required returns.

D. Historical returns of each asset in the portfolio is not a good predictor of future returns of each asset in the portfolio

E. Risk Parity based SAA are better diversified than equal $ allocated SAA.

Q.7 Consider an investor who wishes to invest 40%to defensive investments and 60% allocation to growth investments. The investor has worked out the forecasted volatility, expected return and correlation between the two types of investments as below:

Investments: Volatility Return

Defensive: 6% per annum 5% per annum

Growth: 18% per annum 11% per annum

The correlation between growth and defensive investments is 0.05

Calculate theproportion of riskallocated to Defensive investments in this portfolio.

A.4.56%

B. None of the other answers

C. 7.39%

D. 6.78%

E. 5.65%

Q.8 Which of the following statementsdoes notexplain why small capitalised equities provide higher returns than large capitalised equities over long investment horizons?Because large capitalised firms are better diversified (in terms of markets and products) than small capitalised firms.

A. Because small capitalised firms have a smaller capital base to use in economic downturns.

B. Because large capitalised firms generally have lower cost of borrowing than small capitalised firms.

C. Because small capitalised equities are traded less than large capitalised equities

D. Because small capitalised firms have more volatile earningsthan large capitalised firms.

Q.9 Consider four developed markets with the following allocation to the top 3 industry sectors:

Market 1 Market 2 Market 3 Market 4

Technology (20%) Consumer Staples (20%) Healthcare (20%) Financials (20%)

Financials (15%), Financials (15%), Technology (15%), Technology (15%)

Industrials/Capital Goods (10%), Energy (10%), Basic Materials (10%), Consumer Cyclicals/Discretionaries (10%)

Equal allocation to which two markets provides the best defense in times of market downturn?

A. Market 2 and Market 3

B. Market 3 and Market 4

C. Market 1 and Market 3

D. Market 1 and Market 4

E. Market 2 and Market 4

Q.10Which of the following statements isincorrectregarding Risk Parity portfolios and Risk Allocated portfolios?

A. Both allocation methods allocate risk based on a pre-determined basis.

B. Once portfolios are constructed based on either methodologies, one methodology may result in lower overall risk than the other.

C. Risk Parity portfolio ensure that the marginal contribution to risk is equal for each asset in the portfolio. Risk allocated portfolios ensure that investments with the highest risk have the highest allocation.

D. Once portfolios are constructed based on either methodologies, one methodology may result in a higher overall return than the other.

E. Once portfolios are constructed based on either methodologies, one methodology may result in a more efficient allocation than the other.