Portfolio Management Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

The selected investment strategy, Liability-Driven Investment (LDI), is focused on aligning an investment portfolio with specific liabilities, particularly for institutional investors like pension funds and insurance companies. The primary goal of LDI is to reduce volatility in the investment returns relative to the timing and magnitude of these liabilities. By ensuring that the assets are designed to meet future liabilities, LDI provides a framework that protects the investor from the risks associated with market fluctuations.

In LDI, the asset allocation is structured so that the investment risks are matched closely with the expected liability cash outflows. This typically involves utilizing fixed-income securities that match the duration and amount of future payouts, effectively leading to reduced volatility and a more stable return profile. This strategy acknowledges the need for consistent returns in order to meet obligations as they come due, thereby enhancing financial stability for investors focused on meeting their long-term commitments.

By contrast, other strategies, such as Goals-Based Investing, focus on achieving specific personal or investment goals but may not specifically reduce volatility. Alternative Investment Diversification may involve investing in various asset classes to spread risk but does not guarantee reduced volatility or consistent returns. The Fund of Funds Approach typically involves investing in multiple funds to achieve diversification but may not necessarily focus on the volatility or alignment with