What is a "risk budget"?

A The firms spending budget

B The allocation of total portfolio risk across various risk factors or positions

C A type of insurance

D The cost of hedging

✓ Correct Answer: Option B

A risk budget distributes total allowable risk across investments, strategies, or risk factors.

💡 Why is B) the correct answer?

The correct answer to the question "What is a "risk budget"?" is Option B: The allocation of total portfolio risk across various risk factors or positions.

The other options — A) The firms spending budget, C) A type of insurance, D) The cost of hedging — are incorrect for this CFA Exam Prep question. As explained above: A risk budget distributes total allowable risk across investments, strategies, or risk factors.

📚 About This CFA Exam Prep Practice Question

This 3-level CFA Exam Prep question from the Portfolio Management topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CFA Exam Prep practice test or use flashcards for spaced repetition review.

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What is a "risk budget"?

✓ Correct Answer: Option B

📚 About This CFA Exam Prep Practice Question

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