2026-2027 CIMA CERT EXAM NEWEST
QUESTIONS AND DETAILED CORRECT
ANSWERS | A+ GRADE VERIFIED
SCORE
theoretical model that attempts to explain the relationship
between risk and expected return; models hold that
investors should be compensated for both the time value
of money and the risk taken
-underpriced = positive alpha
-overprice = negative alpha
-0 alpha = fair price Correct Answer CAPM
inherent risk that comes from having exposure to the
overall market; can't be avoided with diversification
Correct Answer systematic risk (market risk)
diversifiable risk or risk that may affect one asset or
investment, but not another; risk can be mitigated through
diversification Correct Answer non-systematic risk
(idiosyncratic risk)
seeks to explain security returns beyond the usual metrics
by introducing risk factors such as expected return, sector,
and systematic factors; doesn't need market expected
return. Correct Answer Arbitrage Pricing Theory (APT)
,an asset pricing model that expands on the capital asset
pricing model by adding size, risk, and value risk factors to
the market risk factor.
1. market, equity
2. size effect
3. book to market Correct Answer Fama French 3 Factor
Model
high market to book
low book to market Correct Answer growth
high book to market
low mkt to book Correct Answer value
measurement of dispersion; considered a better
measurement of downside risk; key metric here as it
demonstrates the fund's potential average loss. Correct
Answer semi-variance
probability of potential loss. meausre of risk that quantifies
potential loss ($,%) and the time frame of the potential
loss.
-takes the highest return from the worst case scenario
Correct Answer Value at Risk (VaR)
conservative measure of downside risk; takes average
return of the worst case scenario Correct Answer
Expected Shortfall (ES)
,Measures risk as downside deviation rather than standard
deviation.; replaces sharpe, considered best/most useful
in client context Correct Answer Sortino Ratio
the portfolio with the least risk possible on any given line
depicting expected return and risk as measured by
standard deviation. Correct Answer Minimum Variance
Portfolio
people choose to take on risk when evaluating potential
losses and avoid risks when evaluating potential gains;
people are risk averse vs pleasure seeking 2:1 Correct
Answer prospect theory
confusion that arise when an individual receives new info
that does not match up or conform to preexisting beliefs
Correct Answer cognitive dissonance
bias when people cling to prior views at the expense of
acknowledging new info Correct Answer conservatism
people actively seek out info that confirms what they
believe and ignore info that contradicts their beliefs
Correct Answer confirmation bias
cognitive bias where people process new info using pre-
existing ideas or beliefs Correct Answer
representativeness bias
, people believe they can control or influence investment
outcomes when in reality they cannot Correct Answer
illusion of control
investors perceive investment outcomes as if they were
predictable, even if they were not Correct Answer
hindsight bias
tendency to be more familiar with and confident in
companies within their own country and favor with heavy
allocations Correct Answer home country bias
individuals treat various sums of money differently based
on where these monies are mentally categorized
(retirement, college, etc.) Correct Answer mental
accounting
investors are influenced by a purchase point or arbitrary
price levels and cling to these numbers when they try to
buy/sell Correct Answer anchoring and adjustment bias
individual responds to similar situation differently based on
the context in which the choice is presented Correct
Answer framing
where easily recalled outcomes are perceived as more
likely than those that are harder to recall or understand
Correct Answer availability bias
QUESTIONS AND DETAILED CORRECT
ANSWERS | A+ GRADE VERIFIED
SCORE
theoretical model that attempts to explain the relationship
between risk and expected return; models hold that
investors should be compensated for both the time value
of money and the risk taken
-underpriced = positive alpha
-overprice = negative alpha
-0 alpha = fair price Correct Answer CAPM
inherent risk that comes from having exposure to the
overall market; can't be avoided with diversification
Correct Answer systematic risk (market risk)
diversifiable risk or risk that may affect one asset or
investment, but not another; risk can be mitigated through
diversification Correct Answer non-systematic risk
(idiosyncratic risk)
seeks to explain security returns beyond the usual metrics
by introducing risk factors such as expected return, sector,
and systematic factors; doesn't need market expected
return. Correct Answer Arbitrage Pricing Theory (APT)
,an asset pricing model that expands on the capital asset
pricing model by adding size, risk, and value risk factors to
the market risk factor.
1. market, equity
2. size effect
3. book to market Correct Answer Fama French 3 Factor
Model
high market to book
low book to market Correct Answer growth
high book to market
low mkt to book Correct Answer value
measurement of dispersion; considered a better
measurement of downside risk; key metric here as it
demonstrates the fund's potential average loss. Correct
Answer semi-variance
probability of potential loss. meausre of risk that quantifies
potential loss ($,%) and the time frame of the potential
loss.
-takes the highest return from the worst case scenario
Correct Answer Value at Risk (VaR)
conservative measure of downside risk; takes average
return of the worst case scenario Correct Answer
Expected Shortfall (ES)
,Measures risk as downside deviation rather than standard
deviation.; replaces sharpe, considered best/most useful
in client context Correct Answer Sortino Ratio
the portfolio with the least risk possible on any given line
depicting expected return and risk as measured by
standard deviation. Correct Answer Minimum Variance
Portfolio
people choose to take on risk when evaluating potential
losses and avoid risks when evaluating potential gains;
people are risk averse vs pleasure seeking 2:1 Correct
Answer prospect theory
confusion that arise when an individual receives new info
that does not match up or conform to preexisting beliefs
Correct Answer cognitive dissonance
bias when people cling to prior views at the expense of
acknowledging new info Correct Answer conservatism
people actively seek out info that confirms what they
believe and ignore info that contradicts their beliefs
Correct Answer confirmation bias
cognitive bias where people process new info using pre-
existing ideas or beliefs Correct Answer
representativeness bias
, people believe they can control or influence investment
outcomes when in reality they cannot Correct Answer
illusion of control
investors perceive investment outcomes as if they were
predictable, even if they were not Correct Answer
hindsight bias
tendency to be more familiar with and confident in
companies within their own country and favor with heavy
allocations Correct Answer home country bias
individuals treat various sums of money differently based
on where these monies are mentally categorized
(retirement, college, etc.) Correct Answer mental
accounting
investors are influenced by a purchase point or arbitrary
price levels and cling to these numbers when they try to
buy/sell Correct Answer anchoring and adjustment bias
individual responds to similar situation differently based on
the context in which the choice is presented Correct
Answer framing
where easily recalled outcomes are perceived as more
likely than those that are harder to recall or understand
Correct Answer availability bias
