n NISM Certifications
XXI NISM Series XXI-A
Medium

When the multiplier in the Constant Proportion Portfolio Insurance (CPPI) strategy is higher, what will be the result?

Practice question from NISM XXI A for PMS - Mock Test 6 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Potential upside gain

  2. B

    Cushion for protecting the desired capital

  3. C

    Hit on capital protection

  4. All of the above

    Correct answer

Why this is the answer

Higher multiplier increases leverage, leading to higher gains but also increased risk of breaching capital protection.

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