CFP Exam Review with Updated Questions and Answers 2023 Eurodollar - CORRECT ANSWER a deposit in a foreign bank that is denominated in dollars Yankee Bond - CORRECT ANSWER dollar denominated bonds issued in the US by foreign banks and corporations, used when market con ditions in the US are better than those overseas. OID - CORRECT ANSWER original issue discount - a bond discounted from par value as a zero coupon bond. There is no taxable phantom income from interest accretion but it must be reported. Purchasing Power Risk - CORRECT ANSWER the loss of purchasing power through inflation Reinvestment Rate Risk - CORRECT ANSWER the risk that proceeds available for reinvestment must be invested at a lower interest rate than the instrument that generated the proceeds Interest Rate Risk - CORRECT ANSWER the risk that a change in interest rates will cause the market value of the fixed income security to fall Market Risk - CORRECT ANSWER the risk of the overall market Financial Risk - CORRECT ANSWER refers to how the firm fi nances its assets Business Risk - CORRECT ANSWER refers to the nature of the firms’ operation Geometric Mean - CORRECT ANSWER also called time weighted return Dollar Weighted Return - CORRECT ANSWER also called IRR Convexity - CORRECT ANSWER the degree to which duratin changes as a bonds YTM changes, it is largest for low coupon bonds, long maturity bonds and low yield bonds. --
IT ALLOWS US TO IMPROVE THE DURATION APPROX IMATION FOR BOND PRICE CHANGES Current rati o - CORRECT ANSWER Current assets/current liabilities Target: 1.0 -2.0 Housing payment ratio - CORRECT ANSWER All monthly nondoscretionary housing costs (PITI) / monthly gross income
IT ALLOWS US TO IMPROVE THE DURATION APPROX IMATION FOR BOND PRICE CHANGES Current rati o - CORRECT ANSWER Current assets/current liabilities Target: 1.0 -2.0 Housing payment ratio - CORRECT ANSWER All monthly nondoscretionary housing costs (PITI) / monthly gross income
