Question 1

Which of the following underlies the pillars of risk tolerance?

Options :

A : Psychological traits

B : Sociological traits

C : Education

D : Experience

Answer: A

Question 2

A firm acting as agent makes money by:

Options :

A : Profiting from the spread

B : Providing advice

C : Charging their client a commission

D : Trading against its own order book

Answer: C

Question 3

According to Modern Portfolio Theory (MPT), portfolios below the efficient frontier are not efficient because:

Options :

A : They attract additional charges

B : Risk-free assets are not profitable

C : The investor assumes proportionately higher risk for lower incremental returns

D : A greater return could be achieved for the same risk

Answer: D

Question 4

What financial principle requires an adviser to gather extensive information from a client before making a recommendation?

Options :

A : Disclosure

B : Transparency of trading

C : Risk reduction

D : Know your customer

Answer: D

Question 5

Performance attribution analysis attempts to explain why a portfolio had a certain return. It does so by breaking down the performance and attributing the results based on the decisions made by the fund manager on which of the following?

Options :

A : Asset allocation alone

B : Asset allocation and sector choice only

C : The combination of asset allocation, sector choice, and security selection

D : The combination of asset allocation, sector choice, security selection, and risk analysis

Answer: C

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