CFP July 2025 Flashcards Combined
With Questions And Answers
What is Systematic Risk? - Answer aka Non diversifiable risk -remember PRIME
purchasing power risk
reinvestment rate risk
interest rate risk
market risk
exchange rate risk
this part of risk is inescapable because no matter how well an investor diversfies, the risk of the
overall market cannot be avoided
What are the market values to define Market capitalizations of Companies? - Answer large -
more than $10 billion
mid - between $2-$10 billion
small - less than $2 billion
micro - less than $300 million
American Depository Receipt - Answer bank issued certificates that represent shares in a
foreign company for trade on american stock exchange
prices of ADRs quoted in US dollars
dividends paid in US dollars
divididends declared in foreign currency
,CFP July 2025 Flashcards Combined
With Questions And Answers
attain diversification and risk reduction due to lower correlation of foreign securities with US
securities
What are the types of Municipal Securities? - Answer General Obligation Bonds (GO Bonds)
Revenue Bonds
Insured Municipal Bond
What is a GO bond? - Answer general obligation bond
Backed by the full faith, credit and taxing power of the issuer. GO Bonds are generally
considered the safest types of municipal credit.
What is a Revenue bond? - Answer Backed by a specific sources of revenue to which the full
faith and credit of the issuer is NOT pledged. Because revenue bonds are backed by a single
source of funds (like toll roads, hospitals, power plants, etc.), they have a greater credit risk than
GO Bonds. As such, they trade at higher yields.
What is an Insured Municipal Bond? - Answer The insurers pay timely interest and principal
when the issuer is in default. Muni bonds insurers are AMBAC and MBIA
What is Unsystematic Risk? - Answer Known as Diversifiable Risk, may also be referred to a
Non-systematic Risk.
remember ABCDEFG
,CFP July 2025 Flashcards Combined
With Questions And Answers
Business Risk: Refers to the nature of the firm's operations (i.e., possibility of loss due to new
technology)
Financial Risk: Refers to how the firm finances its assets (i.e., the possibility of loss due to heavy
debt financing)
accounting risk
business risk
country risk
default risk
executive risk
financial risk
govt regulation risk
What are the types of Systematic Risk? - Answer Purchasing Power Risk: Loss of purchasing
power through inflation.
Reinvestment Risk: Risk that proceeds available for reinvestment must be reinvested at a lower
interest rate than the instrument that generated the proceeds.
Interest Rate Risk: The risk that a change in interest rates will cause the market value of the
fixed income security to fall.
Market Risk: Risk of the overall market
, CFP July 2025 Flashcards Combined
With Questions And Answers
Exchange Rate Risk: Risk associated with changed in the value of the currency.
Study Hint: Remember P.R.I.M.E.
Dividend payout ratio formula - Answer = Common stock dividend / Earnings per share
relationship between the amount of earnings paid to shareholders in the form of a dividend,
relative to earnings per share or eps.
If the required rate of return decreases, _____ what will increase - Answer the stock price will
increase
If the required rate of return increases, ____ what will decease - Answer the stock price will
decrease
If the dividend is expected to INCREASE; the stock price will ______________ - Answer the
stock price will increase
If the dividend is expected to Decrease, the stock price will ___ - Answer the stock price will
decrease
If NPV > 0 - Answer then YES make the investment
Jensen (Alpha) / Treynor - Answer risk measured in terms of beta
With Questions And Answers
What is Systematic Risk? - Answer aka Non diversifiable risk -remember PRIME
purchasing power risk
reinvestment rate risk
interest rate risk
market risk
exchange rate risk
this part of risk is inescapable because no matter how well an investor diversfies, the risk of the
overall market cannot be avoided
What are the market values to define Market capitalizations of Companies? - Answer large -
more than $10 billion
mid - between $2-$10 billion
small - less than $2 billion
micro - less than $300 million
American Depository Receipt - Answer bank issued certificates that represent shares in a
foreign company for trade on american stock exchange
prices of ADRs quoted in US dollars
dividends paid in US dollars
divididends declared in foreign currency
,CFP July 2025 Flashcards Combined
With Questions And Answers
attain diversification and risk reduction due to lower correlation of foreign securities with US
securities
What are the types of Municipal Securities? - Answer General Obligation Bonds (GO Bonds)
Revenue Bonds
Insured Municipal Bond
What is a GO bond? - Answer general obligation bond
Backed by the full faith, credit and taxing power of the issuer. GO Bonds are generally
considered the safest types of municipal credit.
What is a Revenue bond? - Answer Backed by a specific sources of revenue to which the full
faith and credit of the issuer is NOT pledged. Because revenue bonds are backed by a single
source of funds (like toll roads, hospitals, power plants, etc.), they have a greater credit risk than
GO Bonds. As such, they trade at higher yields.
What is an Insured Municipal Bond? - Answer The insurers pay timely interest and principal
when the issuer is in default. Muni bonds insurers are AMBAC and MBIA
What is Unsystematic Risk? - Answer Known as Diversifiable Risk, may also be referred to a
Non-systematic Risk.
remember ABCDEFG
,CFP July 2025 Flashcards Combined
With Questions And Answers
Business Risk: Refers to the nature of the firm's operations (i.e., possibility of loss due to new
technology)
Financial Risk: Refers to how the firm finances its assets (i.e., the possibility of loss due to heavy
debt financing)
accounting risk
business risk
country risk
default risk
executive risk
financial risk
govt regulation risk
What are the types of Systematic Risk? - Answer Purchasing Power Risk: Loss of purchasing
power through inflation.
Reinvestment Risk: Risk that proceeds available for reinvestment must be reinvested at a lower
interest rate than the instrument that generated the proceeds.
Interest Rate Risk: The risk that a change in interest rates will cause the market value of the
fixed income security to fall.
Market Risk: Risk of the overall market
, CFP July 2025 Flashcards Combined
With Questions And Answers
Exchange Rate Risk: Risk associated with changed in the value of the currency.
Study Hint: Remember P.R.I.M.E.
Dividend payout ratio formula - Answer = Common stock dividend / Earnings per share
relationship between the amount of earnings paid to shareholders in the form of a dividend,
relative to earnings per share or eps.
If the required rate of return decreases, _____ what will increase - Answer the stock price will
increase
If the required rate of return increases, ____ what will decease - Answer the stock price will
decrease
If the dividend is expected to INCREASE; the stock price will ______________ - Answer the
stock price will increase
If the dividend is expected to Decrease, the stock price will ___ - Answer the stock price will
decrease
If NPV > 0 - Answer then YES make the investment
Jensen (Alpha) / Treynor - Answer risk measured in terms of beta
