FPQP Exam (Module 6 - Investment
Basics and Strategies) Questions with
Complete Rationales 2026-2027 Update.
LO 6-1: The importance of liquidity - Answer -see page 3
-cash equivalents = investments that are short-term and very liquid. don't make much of a
return
-liquidity=ability to easily convert to cash with little to no loss or principal
Cash equivalents: savings accounts, money market accounts and funds, certificates of deposits
(CDs), treasury bills, and stable value funds
LO 6-1: Money Market Accounts and Funds - Answer -see page 4
-typically pay more than a savings account
-money market accounts = offered by banks. yield less than money market funds but one
advantage is that money market accounts have FDIC insurance (money market funds
don't) ....credit unions have the National Credit Union Share Insurance Fund (NCUSIF) which is
similar to FDIC.
-some mutual funds may offer partially FDIC accounts but that is from a partnership with a bank
LO 6-1: Certificates of Deposit (CDs) - Answer -see page 5-6
-available in different maturities. for an emergency fund would want a maturity of one year or
less but you can stagger maturities and created a CD ladder (as CDs mature then reinvest in
more CDs)
-if a CD is redeemed early the penalty is that you would lose some of the interest gained but not
any of the principal
-CDs are FDIC/NCUSIF insurance
LO 6-1: Treasury Bills - Answer -see page 6
,-backed by the u.s. gov't so very safe
-issued for terms of 4, 13, 26, and 52 weeks and could also be laddered
-can be purchased directly from the gov't (see website in textbook) or through brokerage
accounts (usually with a fee)
-T-bills are bought at a discount and then mature at par
LO 6-1: Stable Value Funds - Answer -see page 6
-usually found in retirement funds (401k) and offer higher yields than money market accounts
-not guaranteed or insured by the gov't and it is possible that there could be a minimal loss of
principal
-pools of money invested in short to medium term government, corporate, and mortgage bonds
-to protect the principal of the bonds the fund purchases insurance from either a bank or
insurance company
LO 6-1: Definition of Stocks and Equity - Answer -see page 7
-equity=ownership, specifically stock ownership
-investors can either loan the firm/company money (by buying bonds) or buy a small part of the
firm (by purchasing stock)
-bonds provide steady income and return of principal at maturity whereas stocks have the
potential for greater returns
LO 6-2: Common stock - capitalizing of a business - Answer -see pages 7-8
-when a business is first created it relies on loans from family and friends and personal
loans...then when a business becomes successful it looks for ways to expand but it needs capital
to do that
, -stock is permanent capital because unlike bonds it has not maturity
-stock is issued as common or preferred stock
-common stock=direct ownership
-preferred stock=behaves more like debt. is not direct ownership but can often be converted
into common shares
LO 6-2: Common Stock - public and private stock ownership - Answer -see pages 8-9
-publicly owned stocks are traded on the various stock exchanges or on the over-the-counter
(OTC) market
-privately held corporation are owned by a limited number of individuals and the stock is not
traded on exchanges. these stocks are more difficult to buy or sell
-closely held companies=have most but not all their shares held by one individual or family
-venture capitalists=investors who invest in start-up companies before they go public
-most publicly traded stock is held in "book entry" form meaning a stock brokerage firm or bank
holds the shares for the investor
LO 6-2: Common Stock - Stockholder Rights-Dividends - Answer -see page 9
-common stockholder have dividend rights, voting rights, preemptive rights, and certain other
legal rights
-dividends=part of the company's profits that are distributed to shareholders
-when a company has a profit it can either retain that profit for future growth or issue dividends
-dividends are usually paid quarterly and the company's board of directors must approve it
every time
LO 6-2: Common Stock - Voting Rights - Answer -see page 10
Basics and Strategies) Questions with
Complete Rationales 2026-2027 Update.
LO 6-1: The importance of liquidity - Answer -see page 3
-cash equivalents = investments that are short-term and very liquid. don't make much of a
return
-liquidity=ability to easily convert to cash with little to no loss or principal
Cash equivalents: savings accounts, money market accounts and funds, certificates of deposits
(CDs), treasury bills, and stable value funds
LO 6-1: Money Market Accounts and Funds - Answer -see page 4
-typically pay more than a savings account
-money market accounts = offered by banks. yield less than money market funds but one
advantage is that money market accounts have FDIC insurance (money market funds
don't) ....credit unions have the National Credit Union Share Insurance Fund (NCUSIF) which is
similar to FDIC.
-some mutual funds may offer partially FDIC accounts but that is from a partnership with a bank
LO 6-1: Certificates of Deposit (CDs) - Answer -see page 5-6
-available in different maturities. for an emergency fund would want a maturity of one year or
less but you can stagger maturities and created a CD ladder (as CDs mature then reinvest in
more CDs)
-if a CD is redeemed early the penalty is that you would lose some of the interest gained but not
any of the principal
-CDs are FDIC/NCUSIF insurance
LO 6-1: Treasury Bills - Answer -see page 6
,-backed by the u.s. gov't so very safe
-issued for terms of 4, 13, 26, and 52 weeks and could also be laddered
-can be purchased directly from the gov't (see website in textbook) or through brokerage
accounts (usually with a fee)
-T-bills are bought at a discount and then mature at par
LO 6-1: Stable Value Funds - Answer -see page 6
-usually found in retirement funds (401k) and offer higher yields than money market accounts
-not guaranteed or insured by the gov't and it is possible that there could be a minimal loss of
principal
-pools of money invested in short to medium term government, corporate, and mortgage bonds
-to protect the principal of the bonds the fund purchases insurance from either a bank or
insurance company
LO 6-1: Definition of Stocks and Equity - Answer -see page 7
-equity=ownership, specifically stock ownership
-investors can either loan the firm/company money (by buying bonds) or buy a small part of the
firm (by purchasing stock)
-bonds provide steady income and return of principal at maturity whereas stocks have the
potential for greater returns
LO 6-2: Common stock - capitalizing of a business - Answer -see pages 7-8
-when a business is first created it relies on loans from family and friends and personal
loans...then when a business becomes successful it looks for ways to expand but it needs capital
to do that
, -stock is permanent capital because unlike bonds it has not maturity
-stock is issued as common or preferred stock
-common stock=direct ownership
-preferred stock=behaves more like debt. is not direct ownership but can often be converted
into common shares
LO 6-2: Common Stock - public and private stock ownership - Answer -see pages 8-9
-publicly owned stocks are traded on the various stock exchanges or on the over-the-counter
(OTC) market
-privately held corporation are owned by a limited number of individuals and the stock is not
traded on exchanges. these stocks are more difficult to buy or sell
-closely held companies=have most but not all their shares held by one individual or family
-venture capitalists=investors who invest in start-up companies before they go public
-most publicly traded stock is held in "book entry" form meaning a stock brokerage firm or bank
holds the shares for the investor
LO 6-2: Common Stock - Stockholder Rights-Dividends - Answer -see page 9
-common stockholder have dividend rights, voting rights, preemptive rights, and certain other
legal rights
-dividends=part of the company's profits that are distributed to shareholders
-when a company has a profit it can either retain that profit for future growth or issue dividends
-dividends are usually paid quarterly and the company's board of directors must approve it
every time
LO 6-2: Common Stock - Voting Rights - Answer -see page 10
