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Exam Guide
Question 7: Portfolio Management (8 points)
As a portfolio manager you decide to answer a request for a proposal by a pension fund. Its
committee, responsible for the asset allocation, needs passive management relative to the
following benchmark:
. 50 % SMI (Swiss Market Index / 23 stocks)
. 50 % MSCI Europe ex Switzerland (multi-country Index / 524 stocks / 21 countries)
Assume that the pension fund portfolio will be measured against its benchmark on a
monthly basis. What is the main problem you will face when indexing this portfolio in the
long run? What potential negative impact do you expect and what positive effects, if any,
could you exploit? (8 points)
Question 8: Portfolio Management (20 points)
You have divided the market in 4 portfolios following 2 dimensions: Value/Growth and
Small/Large. The weight of each portfolio in the index is given. The risk free rate is 2%.
Furthermore, you have designed the following model:
Portfolios
Small value
Small growth
Large value
Large growth
Risk premium
Weight
5%
5%
40%
50%
Sensitivity to
Factor I
(Market beta)
0.85
0.95
0.9
1.1
8%
Sensitivity to
Factor II
(Price/Book)
0.8
1.3
2
3
–2%
Sensitivity to
Factor III
(Average
capitalisation)
1
1
8
10
0.10%
(a)
(b)
(c)
(d)
When using the APT, which portfolio has the highest expected return? Show your
calculations.
Using the APT, what is the expected return of the market and how does it compare
with the returns of the other 4 portfolios?
One of your competitors uses the CAPM. Based on the betas above, which portfolio
will he choose to maximise his expected return?
In order to diversify his perceived risk, another competitor wants to combine the
Small Value and the Large Growth Portfolios. The new portfolio should have an
overall sensitivity to Factor I (market beta) of 1. Show how much the competitor
must invest in Small Value and how much in Large Growth. The portfolio must be
fully invested and without any short sale.
(8 points)
(4 points)
(4 points)
(4 points)
Exam Guide
Question
number
Database references CKB references
1 BV o 11 – IIMR – Fi-Fo 3.
2.2.5.1
2.2.5.3
2.4.1
2.5.2
Bond valuation and analysis
Spot rates
Forward rates
Basic price/yield relationship
Duration and modified duration
2 BV o 3 – SAAJ – Fi 3.
2.4.3
2.5.2
Bond valuation and analysis
Valuation of coupon bonds
Duration and modified duration
3 DV o 2 – SAAJ – Fo-Fi 4.
2.1
2.1.5
Derivatives valuation and analysis
Futures
Hedging strategies
4 DV o 11 – SIA – Fi 4.
2.2
2.2.6
Derivatives valuation and analysis
Options
Options strategies
5 PM o 60 – TCIP – Fi 1.
4.3
4.2.2
Portfolio management
Derivatives in portfolio management
Portfolio insurance
6 PM o 3 – SAAJ – Fi 1.
4.1
4.1.1
4.1.2
4.1.3
Portfolio management
Managing an equity portfolio
Active management
Passive management
Combined strategies
7 PM o 56 – TCIP – Fi 1.
5.1
5.1.3
5.1.3.2
Portfolio management
Performance measurement and evaluation
Relative investment performance
Indices and benchmarks
8 PM o 52 – TCIP – Fi 1.
1.5
1.5.4
Portfolio management
Arbitrage pricing theory
Arbitrage pricing theory
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