IMT Exam 2 Quick Review: Investment Management Techniques
Quick review for Canadian Securities Institute IMT Exam 2 vignette practice: portfolio constraints, risk measures, valuation cues, fixed-income traps, and case-reading checks.
Use this quick review before IMT Exam 2 vignette practice. The goal is to read the client or portfolio case, isolate the controlling constraint, and choose the answer that best fits the mandate, not the answer that merely repeats a familiar formula.
Finance Prep’s IMT Exam 2 practice is original and provider-specific. Mastery Exam Prep / Finance Prep is independent from CSI; these pages are not official CSI IMT Exam 2 questions, copied live-exam content, or exam dumps.
Final-pass map
| Area | What to check first | Common case trap |
|---|---|---|
| Investment policy | Return objective, risk objective, horizon, liquidity, tax, legal, unique circumstances | Choosing a product before the IPS constraint is clear |
| Asset allocation | Strategic mix, required return, risk capacity, rebalancing rule | Treating a tactical view as a permanent policy |
| Fixed income | Duration, convexity, credit spread, yield curve, reinvestment risk | Calling a higher yield better without checking risk or horizon |
| Equity valuation | Dividend model, growth, required return, multiples, quality of earnings | Mixing cash-flow type and discount rate |
| Managed products | Fees, mandate fit, liquidity, tax, tracking error, style drift | Ignoring costs and suitability because past return is high |
| Performance review | Benchmark, time-weighted return, money-weighted return, alpha, risk-adjusted ratios | Using the wrong return or risk measure for the decision |
Core formulas and cues
| Item | Formula or cue | Use when |
|---|---|---|
| Holding-period return | \((P_1 - P_0 + I) / P_0\) | Single-period total return |
| Real return | \((1 + r_{nominal}) / (1 + inflation) - 1\) | Client objective is stated in purchasing-power terms |
| Portfolio return | \(\sum w_i r_i\) | Weighting asset-class or security returns |
| CAPM | \(R_f + beta(R_m - R_f)\) | Required return for systematic risk |
| Jensen alpha | Actual return minus CAPM required return | Beta-adjusted performance |
| Modified duration | Macaulay duration divided by \(1 + y/m\) | Approximate bond price sensitivity |
| Gordon growth | \(P_0 = D_1 / (k - g)\) | Stable dividend growth valuation |
| Sharpe ratio | Excess return divided by standard deviation | Total-risk performance review |
| Treynor ratio | Excess return divided by beta | Well-diversified portfolio review |
| Information ratio | Active return divided by tracking error | Active manager review versus benchmark |
Case-reading checklist
Before answering an IMT Exam 2 vignette question, write the issue in one sentence:
- The client needs cash soon, so liquidity and capital preservation control the answer.
- The portfolio has a known liability date, so duration or cash-flow matching may matter.
- The investor has a high tax rate, so after-tax return and asset location matter.
- The manager is being evaluated, so benchmark fit and risk-adjusted return matter.
- The recommendation changes risk exposure, so suitability and IPS constraints matter.
If you cannot state the controlling issue, reread the case before choosing an answer.
High-yield traps
| Trap | Better approach |
|---|---|
| Using nominal return when the case asks about purchasing power | Convert to real return or use inflation-aware reasoning |
| Treating high return as evidence of high skill | Check benchmark, risk, fees, and time period |
| Choosing duration only from maturity | Check coupon, yield, call features, and cash-flow timing |
| Reading beta as total risk | Use beta for systematic risk; use standard deviation for total risk |
| Recommending rebalancing without cost review | Check taxes, liquidity, thresholds, and policy bands |
| Ignoring currency exposure | Separate local asset return from CAD return |
Next step
Use the IMT Exam 2 vignette practice page for a public case-style sample set, then continue with Finance Prep mixed case practice and explanation review.