CFA Level I · CFA Level I Exam · Benchmarking Returns
A benchmark is described as having holdings that the investor could actually replicate at reasonable cost with known weights, and that were identified before the evaluation period began. These features most likely describe which qualities of a valid benchmark?
The features describe a benchmark that is investable and specified in advance. Investors can replicate its holdings at reasonable cost, and it was identified before the evaluation period. The other options contradict valid benchmark criteria, such as measurability, or misstate them.
- AInvestable and specified in advanceCorrect
- BUnambiguous and unmeasurable
- CReflective of current opinions only
Explanation
Valid benchmark qualities include being specified in advance, appropriate, measurable, unambiguous, owned by the manager, reflective of current investment opinions, accountable and investable. Replicable holdings relate to investability, and prior identification to being specified in advance.
Did you get it right without looking?
One question tells you little. A timed set on Benchmarking Returns shows your real accuracy, how long you take and where you lose marks.
More Benchmarking Returns questions
- An analyst computes a portfolio's active return each month relative to its benchmark and finds the average is positive. Which statement abou…
- A manager's portfolio returned 11.0% and the chosen benchmark returned 8.0%. The benchmark's holdings, however, have an average beta of 0.8 …
- A benchmark is described as having holdings that the manager could buy in the market with reasonable cost and liquidity, so that the benchma…
- A portfolio manager says she can only offer a benchmark's results once a quarter, because prices for many of its constituents are updated in…
- A portfolio has a 70% weight in equities and 30% in bonds; its benchmark has 60% in equities and 40% in bonds. Equity returns are 10% in bot…
- An analyst computes a portfolio's active return by subtracting the benchmark return from the portfolio return. The result is most likely a m…