SOA Portfolio Management Examination Practice Test
Portfolio management combines asset allocation, investment analysis, and risk control to help investors pursue financial objectives. Practice questions address expected portfolio returns, inflation-adjusted returns, net asset value, mutual fund distributions, and investment exposure through futures. These calculations connect return measurement with the effects of market movements and portfolio structure.
Exam overview
About the SOA Portfolio Management Examination Exam
Portfolio decisions require comparing expected return with risk, recognizing how diversification affects outcomes, and interpreting benchmark-relative exposure. Fixed-income analysis includes estimating price sensitivity to changes in yields at different maturities, while derivatives questions examine futures leverage and the direction of a hedge. Other calculations test compounding, real returns, weighted-average portfolio returns, and net asset value after accounting for liabilities and shares outstanding. Mutual fund distributions provide a practical context for distinguishing cash received from an increase in total wealth. These skills support tasks such as assessing portfolio performance, evaluating risk exposures, checking investment calculations, and considering whether a portfolio aligns with an investor’s objectives and constraints.
Sample Practice Questions
Review a selection from this exam's published US Practice Tests practice bank.
A portfolio uses a futures contract to gain exposure to an asset without purchasing the asset outright. Which feature of futures most directly creates leverage?
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Correct answer: AFutures generally require an initial margin that is only a fraction of the contract’s notional exposure. This creates leverage: gains and losses can be large relative to the margin posted, and losses can require additional funds.
A fixed-income portfolio has key rate durations of 2.0 at the 2-year point and 3.0 at the 10-year point. If the 2-year yield rises by 0.01 and the 10-year yield falls by 0.02, what is the approximate portfolio return from these yield changes, ignoring convexity?
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Correct answer: DApproximate return is the negative sum of each key rate duration times its yield change: −[2.0(0.01) + 3.0(−0.02)] = −[0.02 − 0.06] = 0.04, or 4%.
An investor's portfolio earns 8% over a year, while inflation is 3%. Approximately what is the portfolio's real return for that year?
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Correct answer: AThe exact real return is (1.08 / 1.03) − 1 ≈ 4.85%. Subtracting inflation from the nominal return gives a 5% approximation, but the exact calculation accounts for compounding.
An investor receives a cash distribution from a mutual fund. The fund’s net asset value per share falls by approximately the amount distributed, with other factors unchanged. What is the most appropriate interpretation of the investor’s position immediately after the distribution?
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Correct answer: BA cash distribution reduces the fund’s assets and generally its net asset value per share by a corresponding amount, all else equal. The investor holds more cash but less value in the fund, so the distribution itself is not an automatic economic gain.
A manager uses a broad market index as a benchmark. The portfolio holds securities outside that index, and their returns differ from the index constituents. Which risk does this introduce most directly?
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Correct answer: AWhen a portfolio’s opportunity set or exposures differ materially from its benchmark, reported relative performance can reflect benchmark mismatch rather than only the manager’s intended decisions.
An investor is choosing between two risky portfolios that offer the same expected return. Under mean-variance preferences, which portfolio would a risk-averse investor generally prefer?
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Correct answer: BWhen expected returns are equal, a mean-variance risk-averse investor prefers the portfolio with less variance. The number of holdings alone does not establish that a portfolio is less risky.
A portfolio has $2 million in assets and $1.5 million in liabilities. What is its net asset value per share if it has 50,000 shares outstanding?
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Correct answer: BNet asset value is assets minus liabilities, or $500,000. Dividing by 50,000 shares gives $10 per share. Correction: $500,000 ÷ 50,000 = $10, so option A is correct.
How to use this practice test
The free practice session draws up to 20 random questions from the available bank of 50. Work through each calculation before viewing the session results, then use missed or uncertain answers to identify concepts to revisit, such as duration sensitivity, futures hedging, or real return.
Preparation tips
- For weighted portfolio returns, multiply each asset’s expected return by its portfolio weight and sum the contributions; check that weights total 100%.
- Practice approximating fixed-income price changes with key rate durations, matching each yield change to its maturity point and accounting for the sign of the change.
- Compare nominal and real returns by adjusting for inflation, and distinguish an approximate subtraction from the exact ratio calculation when precision matters.
- For futures questions, separate the exposure created by margin from the contract’s notional value, and choose long or short positions according to the risk being hedged.
- When calculating net asset value per share, subtract liabilities from assets before dividing by shares outstanding; treat a fund distribution as a transfer of value when other factors are unchanged.