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100+ Free Investment (INV) Practice Questions

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2026 Statistics

Key Facts: Investment (INV) Exam

3 hours

Exam Duration

Actuaries Institute

$3,800 AUD

2026 Subject Fee

Actuaries Institute Fee Schedule

8

Learning-objective groups (no weights published)

Investment 2026 Subject Syllabus

ALM

Formal prerequisite subject

Investment 2026 Subject Syllabus

100

Practice Questions

OpenExamPrep

Investment (INV) is one of seven Principles subjects in the Actuaries Institute Fellowship Program, offered in Semester 2 and delivered 100% online over a 16-week semester. It is assessed by an open-book written examination of three hours plus 15 minutes reading time worth 80% and an assignment worth 20%, with a 2026 subject fee of $3,800 AUD; no item count and no pass mark are published. The Asset Liability Management (ALM) subject is a formal prerequisite, and the syllabus explicitly defers the debt, equity and property fundamentals to ALM. The syllabus sets out eight learning-objective groups — investment objectives, asset characteristics, asset valuation, asset allocation, portfolio management, performance measurement, manager selection and investment policy statements — without publishing topic weightings. These 100 free questions are an English-language multiple-choice study adaptation of that syllabus, not an official item bank and not a simulation of the real written-answer paper.

Sample Investment (INV) Practice Questions

Try these sample questions to test your Investment (INV) exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Under the Capital Asset Pricing Model (CAPM), what is the expected return of an asset with systematic risk beta β_i = 1.40, assuming the risk-free rate is 3.5% and the expected return on the market portfolio is 8.5%?
A.10.50%
B.11.90%
C.15.40%
D.9.50%
Explanation: Under the CAPM: E[R_i] = R_f + β_i × (E[R_m] - R_f) = 3.5% + 1.40 × (8.5% - 3.5%) = 3.5% + 1.40 × 5.0% = 3.5% + 7.0% = 10.50%.
2In Modern Portfolio Theory (Markowitz), what does the 'Two-Fund Separation Theorem' establish?
A.Any optimal portfolio on the efficient frontier can be formed by combining the risk-free asset and the unique tangency (market) portfolio of risky assets in appropriate proportions
B.An investor must always invest exactly 50% in equities and 50% in cash
C.Asset managers must maintain two physically separated bank accounts for each client
D.Active management always outperforms passive index funds by a factor of two
Explanation: The Two-Fund Separation Theorem states that every investor, regardless of risk aversion, chooses the same optimal portfolio of risky assets (the tangency portfolio) and achieves their desired risk-return profile solely by adjusting the allocation between that risky portfolio and the risk-free asset.
3In fixed income asset-liability management, what is the Macaulay duration of a 3-year annual bond with face value AUD 1,000 paying a 6% annual coupon, yielding 6% per annum (trading at par)?
A.2.833 years
B.3.000 years
C.2.673 years
D.1.500 years
Explanation: Cash flows: Year 1 = 60, Year 2 = 60, Year 3 = 1060. Discounting at 6%: PV(CF_1) = 60/1.06 = 56.604; PV(CF_2) = 60/1.06^2 = 53.400; PV(CF_3) = 1060/1.06^3 = 889.996. Total PV = 1,000. Weighted times: 1 × 56.604 + 2 × 53.400 + 3 × 889.996 = 56.604 + 106.800 + 2669.988 = 2833.392. Macaulay Duration = 2833.392 / 1000 = 2.833 years.
4A bond portfolio has a Modified duration of 7.50 years and Convexity of 80.0. If market yields increase by 100 basis points (+1.00%), what is the estimated percentage change in portfolio value using the second-order duration-convexity approximation?
A.-7.10%
B.-7.50%
C.-7.90%
D.-6.70%
Explanation: Percentage change = -ModD × Δy + 0.5 × Convexity × (Δy)^2 = -7.50 × (+0.01) + 0.5 × 80.0 × (0.01)^2 = -0.0750 + 0.5 × 80.0 × 0.0001 = -0.0750 + 0.0040 = -0.0710 or -7.10%.
5Under APRA Prudential Standard SPS 530 (Investment Governance for Superannuation Trustees), what is the trustee's mandatory obligation regarding 'Liquidity Management'?
A.The trustee must maintain a robust Liquidity Management Plan (LMP), establish clear liquidity stress testing scenarios, set minimum liquid asset buffers, and ensure member rollovers and benefit payments can be met without fire-selling unlisted assets
B.The trustee must invest 100% of all member funds in physical cash bank accounts
C.The trustee is prohibited from holding any cash reserves
D.The trustee must allow members to borrow liquidity directly from fund assets with zero interest
Explanation: APRA SPS 530 requires RSE licensees to formulate and maintain a comprehensive Liquidity Management Plan (LMP). The plan must include stress testing, liquidity risk appetite limits, monitoring illiquid asset allocations, and managing cash flows under extreme portability/switching conditions.
6In performance attribution analysis, the Brinson-Fachler model decomposes active portfolio excess return relative to a benchmark into which three distinct components?
A.Asset Allocation Effect, Stock Selection Effect, and Interaction Effect
B.Currency Effect, Inflation Effect, and Tax Effect
C.Maturity Effect, Credit Spread Effect, and Coupon Effect
D.Management Fee Effect, Brokerage Effect, and Custody Effect
Explanation: The Brinson-Fachler attribution framework decomposes active return (R_p - R_b) into: (1) Allocation Effect (over/underweighting sectors relative to benchmark returns), (2) Selection Effect (picking outperforming securities within sectors), and (3) Interaction Effect (joint effect of allocation and selection).
7In the Black-Litterman asset allocation model, what is the starting point for expected asset returns before incorporating investor views?
A.Implied market equilibrium expected returns derived through reverse optimization of the market capitalization-weighted portfolio: Π = δ Σ w_mkt
B.Historical 10-year arithmetic mean returns of each asset class
C.The risk-free rate plus a flat 5.0% equity risk premium across all assets
D.Analyst consensus earnings growth estimates published on financial news websites
Explanation: The Black-Litterman model begins with neutral implied equilibrium returns Π = δ Σ w_mkt (where δ is risk aversion, Σ is covariance matrix, w_mkt is market cap weights). This eliminates the extreme corner solutions typical of standard Markowitz optimization before Bayesian updating with subjective views.
8What is the primary objective of a 'Risk Parity' (Equal Risk Contribution - ERC) asset allocation strategy?
A.Allocating capital across asset classes such that every asset class contributes an equal proportion of total portfolio risk (volatility)
B.Holding an equal dollar weight (e.g. 25% each) in four asset classes
C.Eliminating 100% of market volatility by holding only cash
D.Maximizing portfolio leverage to 10 times capital
Explanation: In a traditional 60/40 equity/bond portfolio, equities drive ~90% of total portfolio risk. Risk Parity allocates capital so that each asset class contributes equally to total portfolio risk: w_i × (∂σ_p / ∂w_i) = σ_p / N, typically requiring leverage on low-volatility fixed income to match equity risk contributions.
9Which of the following describes the 'Redington Immunization' conditions required to protect a balance sheet surplus against small parallel shifts in interest rates?
A.PV(Assets) = PV(Liabilities), Dollar Duration(Assets) = Dollar Duration(Liabilities), and Convexity(Assets) > Convexity(Liabilities)
B.Maturity(Assets) = Maturity(Liabilities) and Coupon(Assets) = Coupon(Liabilities)
C.Duration(Assets) = 0 and Duration(Liabilities) = 0
D.PV(Assets) > PV(Liabilities) and Convexity(Assets) < Convexity(Liabilities)
Explanation: Redington (1952) established three classical immunization conditions: (1) PV(A) = PV(L), (2) Duration matching: dPV(A)/dy = dPV(L)/dy, and (3) Convexity condition: d²PV(A)/dy² > d²PV(L)/dy², ensuring the asset value curve sits strictly above the liability value curve for any parallel interest rate shock.
10In multi-factor equity modeling, what are the three factor loadings in the Fama-French Three-Factor Model?
A.Market risk premium (R_m - R_f), Size premium (SMB - Small Minus Big), and Value premium (HML - High Minus Low book-to-market)
B.Inflation rate, Unemployment rate, and GDP growth rate
C.Dividend yield, Price-to-Earnings ratio, and Debt-to-Equity ratio
D.Short-term interest rate, Long-term bond yield, and Crude oil price
Explanation: The Fama-French (1993) Three-Factor Model expands CAPM by adding two empirical anomaly factors: (1) Size (SMB, small-cap minus large-cap returns) and (2) Value (HML, high book-to-market value minus low book-to-market growth returns): E[R_i] - R_f = β_i(R_m - R_f) + s_i(SMB) + h_i(HML).

About the Investment (INV) Exam

Investment (INV) is a Principles subject in the Actuaries Institute Fellowship Program. It gives students an understanding of the principles and practices relevant to investment management, advice and consulting across commercial and business environments: forming investment objectives from investor needs and liabilities, evaluating asset return and risk characteristics, valuing and selecting assets, and constructing, managing and assessing portfolios.

Assessment

Open-book written examination (3 hours plus 15 minutes reading time) worth 80% plus an assignment worth 20%, per the 2026 Investment subject syllabus. Assessment is delivered 100% online.

Time Limit

3 hours plus 15 minutes reading time

Passing Score

not-published

Exam Fee

$3,800 AUD (2026 Fellowship Program subject fee, GST exempt) (Actuaries Institute (Australia))

Investment (INV) Exam Content Outline

Not published

1. Formulating investment objectives

Explain the distinctive characteristics and needs of an investor that influence their investment objectives, and design a set of investment objectives having regard to those identified needs.

Not published

2. Characteristics of the principal asset types

Review debt, equity and property characteristics as covered in Asset Liability Management, examine alternatives such as infrastructure, distinguish public and private markets, explain the private-to-listed journey and its pricing impact, explain relationships between asset returns across market environments, and evaluate a set of capital market assumptions.

Not published

3. Methods of asset valuation

Apply asset valuation methods to debt, equity and property, discuss valuation methods for alternative asset types, and evaluate the valuation methods available when deciding to buy, sell or hold assets.

Not published

4. Methods used for asset allocation

Consider and critique the asset allocation methods investors commonly use, examine the factors that influence the choice of method, design a strategic asset allocation for an investor's objectives, and explain tactical and dynamic asset allocation techniques.

Not published

5. Methods used for portfolio management

Explain and critique portfolio management within asset classes and for a diversified portfolio, explain the use of derivatives to manage risk within a single class and across asset allocation, and discuss the management of currency risk in a global portfolio.

Not published

6. Investment performance measurement

Review the methods used for investment performance assessment, explain the global standards for investment performance measurement, and conduct a performance attribution analysis.

Not published

7. Investment manager selection

Analyse why and how investors use investment managers, explain the quantitative and qualitative methods used to assess and select them, compare managers, consider active manager performance and the value of past performance, and recommend whether to use active managers.

Not published

8. Investment policy statements

Explain why an investment policy statement is needed and what it contains, evaluate an investment policy statement for a given situation, and describe the process to develop a policy that meets an investor's needs.

How to Pass the Investment (INV) Exam

What You Need to Know

  • Passing score: not-published
  • Assessment: Open-book written examination (3 hours plus 15 minutes reading time) worth 80% plus an assignment worth 20%, per the 2026 Investment subject syllabus. Assessment is delivered 100% online.
  • Time limit: 3 hours plus 15 minutes reading time
  • Exam fee: $3,800 AUD (2026 Fellowship Program subject fee, GST exempt)

Keys to Passing

  • Work through all 100 available questions
  • Review every answer and explanation
  • Track weak areas and revisit them
  • Use our AI tutor for tough concepts

Investment (INV) Study Tips from Top Performers

1Work through all eight syllabus groups, not just the quantitative ones — manager selection and investment policy statements each carry their own learning objectives.
2Understand the Brinson-Hood-Beebower and Brinson-Fachler performance attribution models (allocation, selection, and interaction effects) and be able to explain the global performance measurement standards.
3Be able to design a strategic asset allocation from an investor's stated objectives, then critique the method you chose against the alternatives.
4Practise Black-Litterman model intuition, including equilibrium market implied returns and Bayesian updating with investor views.

Frequently Asked Questions

What is the format of the Investment (INV) examination?

The 2026 subject syllabus states INV is assessed by an open-book written examination of three hours plus 15 minutes reading time worth 80% of the mark, and an assignment worth 20%. Assessment skill levels are set at simple application 25%, application 50% and higher order 25%.

Is Asset Liability Management part of the Investment subject?

No — ALM is a separate Actuary Program subject and is a formal prerequisite for Investment. The INV syllabus explicitly reviews debt, equity and property characteristics 'as covered in Asset Liability Management' and then builds on them, so duration matching and immunisation belong to ALM rather than INV.

Which parts of the syllabus are most often under-prepared?

Investment manager selection (learning objective 7) and investment policy statements (learning objective 8) are full syllabus groups in their own right, alongside performance measurement and the global performance standards. Candidates who focus only on portfolio theory and asset allocation miss roughly a third of the paper.

What is the 2026 fee for the Investment subject?

The subject fee is $3,800 AUD (GST exempt), covering online course materials, tutorials, assignment marking and examination registration. Printed subject materials are optional at $270-$300 AUD.

Are these practice questions the same format as the official exam?

No. The official INV paper uses extended written answers and quantitative modelling. This bank is an English-language multiple-choice study adaptation of the official syllabus, built to reinforce the formulas, methods and judgement the paper assumes. It is not an official item bank and does not replace practising extended written answers.