CFA Practice Questions
Chartered Financial Analyst
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An analyst develops the following capital market expectations: US equities at 8% return with 16% volatility, European equities at 7% with 18% volatility, and US bonds at 3.5% with 5% volatility. She assumes 2.5% real GDP growth for the US and 1.0% for Europe, yet uses an identical equity risk premium of 5% for both regions. Which requirement of the CME framework has the analyst most likely violated?
A portfolio strategist projects 10-year annualized US equity returns of 7.0% but forecasts a severe recession in years 1–2 with cumulative equity losses of 35%. He projects smooth 9% annual returns for years 3–10 to arrive at his 7% average. The most likely issue with these expectations is a violation of:
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