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Answer: Returns on comparable assets reflect exposures to specific systematic factors.
The correct answer is **A** because strategic asset allocation (SAA) is grounded in the principle that returns of similar assets (e.g., long-term debt) are influenced by exposures to systematic factors (e.g., inflation rate changes). This aligns with the focus of SAA on long-term policy weights. - **B** is incorrect because systematic risk, not nonsystematic risk, primarily drives long-term portfolio value changes. - **C** is incorrect as tactical asset allocation, not SAA, involves deliberate deviations from policy exposures to exploit near-term return forecasts.
Author: LeetQuiz Editorial Team
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Which of the following investment principles best explains the use of strategic asset allocation in portfolio construction?
A
Returns on comparable assets reflect exposures to specific systematic factors.
B
Nonsystematic risk dominates the long-term changes in portfolio value.
C
Deviating from policy exposures to systematic risk factors can enhance portfolio value.
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