CFP Exam 2024 Questions With Complete Solutions
Dividend Discount Model - ANSWER-V = Next period's dividend / (req. rate of return -
dividend growth rate)
(on formula sheet)
next div = current div(1+growth rate)
Expected Rate of Return - ANSWER-Rate of Return = (Next period's dividend / market
price) + dividend growth rate
Net Present Value NPV - ANSWER-PV of CF - Initial Cost
positive = invest
0 = invest
negative = do not invest
Holding Period Return HPR - ANSWER-(Selling Price - Purchase Price +/- CF) /
Purchase price or Equity invested
List all Systematic Risks - ANSWER-PRIME
Purchasing power risk
Reinvestment rate risk
Interest rate risk
Market risk
Exchange rate risk
List all Unsystematic Risks - ANSWER-ABCDEFG
Accounting Risk
Business Risk
Country Risk
Default Risk
, Executive Risk
Financial Risk
Government/Regulation Risk
Beta - ANSWER-measures volatility of a security relative to market
1 = market
>1 = more volatile than market
<1 = less volatile than market
only use when R-squared is less than 0.7
Coefficient of Variation - ANSWER-SD / Average Return
useful in determining which investment has more risk.
tells us the probability of actually experiencing a return close to the average return
Four basis premises of Traditional Finance - ANSWER-- markets are efficient
- investors are rational
- the mean-variance portfolio theory governs
- returns are determined by risk
Four basic premises of Behavioral Finance - ANSWER-- markets are inefficient
- investors are irrational
- the Behavioral Portfolio Theory governs
- risk alone does not determine returns
IPS Investment Policy Statement includes: - ANSWER-RR LL TT U
risk tolerance, return requirements, liquidity, laws/regulations, taxes, time horizon,
unique circumstances
DOW or the DJIA - ANSWER-price-weighted average of 30 blue chip stocks
S&P 500 - ANSWER-typically "the market"
Dividend Discount Model - ANSWER-V = Next period's dividend / (req. rate of return -
dividend growth rate)
(on formula sheet)
next div = current div(1+growth rate)
Expected Rate of Return - ANSWER-Rate of Return = (Next period's dividend / market
price) + dividend growth rate
Net Present Value NPV - ANSWER-PV of CF - Initial Cost
positive = invest
0 = invest
negative = do not invest
Holding Period Return HPR - ANSWER-(Selling Price - Purchase Price +/- CF) /
Purchase price or Equity invested
List all Systematic Risks - ANSWER-PRIME
Purchasing power risk
Reinvestment rate risk
Interest rate risk
Market risk
Exchange rate risk
List all Unsystematic Risks - ANSWER-ABCDEFG
Accounting Risk
Business Risk
Country Risk
Default Risk
, Executive Risk
Financial Risk
Government/Regulation Risk
Beta - ANSWER-measures volatility of a security relative to market
1 = market
>1 = more volatile than market
<1 = less volatile than market
only use when R-squared is less than 0.7
Coefficient of Variation - ANSWER-SD / Average Return
useful in determining which investment has more risk.
tells us the probability of actually experiencing a return close to the average return
Four basis premises of Traditional Finance - ANSWER-- markets are efficient
- investors are rational
- the mean-variance portfolio theory governs
- returns are determined by risk
Four basic premises of Behavioral Finance - ANSWER-- markets are inefficient
- investors are irrational
- the Behavioral Portfolio Theory governs
- risk alone does not determine returns
IPS Investment Policy Statement includes: - ANSWER-RR LL TT U
risk tolerance, return requirements, liquidity, laws/regulations, taxes, time horizon,
unique circumstances
DOW or the DJIA - ANSWER-price-weighted average of 30 blue chip stocks
S&P 500 - ANSWER-typically "the market"
