Q1: Ethical and Professional Standards – Market Manipulation
Which of the following scenarios is most likely a violation of market manipulation under the CFA Institute Code of Ethics?
A) A portfolio manager increases purchases of a low-volume stock before an earnings report to inflate its price and later sells it.
B) An institutional trader uses block orders to execute large trades at different times throughout the day to minimize market impact.
C) A hedge fund manager publicly criticizes a company’s management on a financial news channel to voice concerns about governance.
Q2: Performance Attribution – Fixed-Income Attribution Analysis
Which of the following attribution models best isolates the impact of changes in the yield curve slope in fixed-income portfolio analysis?
A) Exposure Decomposition Model, which groups securities by sector and maturity to determine risk impact.
B) Yield Curve Decomposition – Duration Based Model, which accounts for changes in different segments of the yield curve.
C) Full Repricing Model, which recalculates all bond prices based on changes in spot rates.
Q3: Performance Measurement – Multi-Period Attribution
Which of the following statements about geometric multi-period attribution is correct?
A) Arithmetic excess returns can be summed over multiple periods, while geometric returns cannot.
B) Geometric excess returns inherently preserve compounding effects, making them more accurate for longer time frames.
C) The Menchero Algorithm is used to smooth arithmetic attribution over multi-periods, making it identical to geometric attribution.
Q4: Investment Performance Presentation – Data Integrity Issues
A common cause of discrepancies between time-weighted performance and NAV-based performance is:
A) Trade date vs. settlement date timing differences, which lead to variations in reported returns.
B) Custodial errors, where a fund administrator fails to record a capital gain distribution.
C) Management fees being incorrectly applied on a quarterly basis rather than monthly.
Q5: Portfolio Construction – Currency Overlay Strategies
A partial currency hedge differs from a full currency hedge primarily in:
A) The level of exposure to interest rate differentials between the domestic and foreign currencies.
B) The ability to completely eliminate all foreign exchange risks in the portfolio.
C) The inclusion of exotic currency derivatives to reduce exposure to currency fluctuations.
Q6: Manager Selection – Benchmark Selection Risks CIPM Level 2 Practice Questions 2025 , CIPM Level 2 , CIPM Practice Questions
Which of the following benchmark-related risks would most likely lead to a misleading evaluation of an investment manager’s performance?
A) A strategy benchmark that fails to account for differences in investable securities.
B) A broad market index that includes assets the manager does not hold in the portfolio.
C) A peer group benchmark, which may include managers with different investment mandates.
Q7: Performance Appraisal – Type I vs. Type II Errors
In evaluating a fund manager’s performance, a Type I Error occurs when:
A) A manager with no true skill is selected based on luck-driven excess returns.
B) A high-alpha manager is mistakenly rejected because of short-term underperformance.
C) A manager’s Sharpe ratio is below 1, leading to an incorrect conclusion about risk-adjusted returns.
Q8: Performance Measurement – Money-Weighted Return vs. Time-Weighted Return
A fund has the following cash flows: CIPM Level 2 Practice Questions 2025 , CIPM Level 2 , CIPM Practice Questions
Initial Investment: $500,000
After 6 months: The value increases to $550,000, and an additional $250,000 is invested.
End of Year Value: $900,000
Which statement about Money-Weighted Return (MWRR) vs. Time-Weighted Return (TWRR) is correct?
A) MWRR is higher because the larger investment was made before stronger performance.
B) TWRR is higher because it removes the effect of the additional investment.
C) Both MWRR and TWRR are equal since both measure the portfolio's compounded growth rate.
Q9: Risk Attribution – Tracking Error Calculation
A portfolio has the following annual excess returns compared to its benchmark:
Year | Portfolio Return (%) | Benchmark Return (%) |
1 | 11.2 | 10.5 |
2 | 9.8 | 9.3 |
3 | 12.5 | 11.0 |
What is the tracking error for this portfolio?
A) 0.65%
B) 0.79%
C) 1.02%
Q10: Performance Attribution – Jensen’s Alpha
A portfolio has a beta of 1.1 and the following return parameters:
Portfolio Return: 15%
Risk-Free Rate: 3%
Market Return: 12%
Calculate Jensen’s Alpha.
A) 1.7%
B) 2.2%
C) 2.5%
If you're looking for more practice questions and study resources to boost your chances of passing the CIPM Level 2 exam, check out our comprehensive study materials below!
Comments