CFA Level I · CFA Level I Exam · Benchmarking Returns
A portfolio manager says she can only offer a benchmark's results once a quarter, because prices for many of its constituents are updated infrequently. The benchmark most likely fails which quality of a valid benchmark?
The benchmark most likely fails the measurable quality. A valid benchmark's return must be calculable at reasonable frequency, and infrequent constituent price updates prevent that. Accountability and advance specification relate to manager acceptance and prior disclosure, not to return calculation frequency.
- AAccountable
- BMeasurableCorrect
- CSpecified in advance
Explanation
A measurable benchmark has a return that can be calculated on a reasonably frequent basis. Infrequent price updates prevent regular return calculation. Accountability concerns the manager's acceptance and understanding of the benchmark, which is not the issue here.
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