Performance Analysis PFMP Practice Questions (Page 1)

Questions 1–5

1. 1expert · hard

   A portfolio manager is evaluating two mutually exclusive projects for inclusion in a capital-constrained portfolio. Project X has an NPV of $1.2M and an IRR of 15%. Project Y has an NPV of $1.0M and an IRR of 18%. The portfolio's cost of capital is 12%, and the strategic objective is to maximize long-term value creation. Which project should be selected?

   • AProject X, because it has a higher NPV, which aligns with maximizing long-term value.
   • BProject Y, because it has a higher IRR, indicating a higher return on investment.
   • CEither project, because both have an IRR above the cost of capital.
   • DNeither project, because the IRR is not high enough to justify the risk.
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2. 2foundation · easy

   What is the primary purpose of collecting performance data from portfolio components?

   • ATo automate all portfolio management decisions
   • BTo replace the need for qualitative assessments
   • CTo provide accurate and timely information for portfolio performance analysis
   • DTo satisfy regulatory compliance requirements
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4. 3application · medium

   A portfolio manager is preparing a performance report for the executive committee. The report should highlight that the portfolio's overall ROI has been steadily increasing over the past four quarters, but the rate of increase is slowing. What is the best way to present this information?

   • AInclude only the most recent quarter's ROI and a brief note that it is increasing.
   • BPresent a pie chart showing the current ROI distribution across projects.
   • CProvide a detailed table of all project-level ROI data for the past four quarters.
   • DShow a bar chart of quarterly ROI values with a trend line indicating the slowing growth.
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5. 4foundation · easy

   Which technique is commonly used to visually identify potential root causes of a performance problem?

   • APareto chart
   • BGantt chart
   • CFishbone diagram
   • DControl chart
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6. 5application · medium

   After a quarterly performance review, a portfolio manager identifies that a recurring variance in project cost estimates is due to a lack of standardized estimation guidelines. What should the portfolio manager do to support continuous improvement?

   • AIncrease the portfolio's contingency reserve to absorb future cost variances.
   • BRequire project managers to provide more detailed cost estimates in the future.
   • CReport the variance to stakeholders but take no further action.
   • DDocument the root cause and update the portfolio's estimation guidelines to prevent recurrence.
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