CFP Exam Questions ALL YOU NEED
(Latest Update ) with Verified
Answers 100 % Correct [Grade A]
Covariance - correct answer non standardized version of correlation coefficient
Measures the extent to which two variable (returns on investments) move together,
either positively (together) or negatively (opposite)
COVij = ρijσiσj
(pij = Correlation Coefficient)
&
(σi, σj = standard deviations of assets A and B)
adjust % (10% = .1) when calculating
Beta - correct answer measure of Systematic Risk (diversified & no unsystematic risk)
Market Beta =1
,Beta >1 = More Volatile than market (AGG) (1.25 = 25% more than volatile market)
Beta < 1 = Less Volatile than Market (Defensive) (.8 = 20% less volatile than market)
Port betas are more stable over time than indv securities.
Beta is meaningful if R² > .7
Portfolio Beta calulation - correct answer FMV a x B a = Product
Sum of all products / sum of FMV = PB
(weighted average calculation)
Coefficient of Determination R² - correct answer How much movement is explained by
the market?
Formula = R² = Correlation coefficient²
Measures the % of total risk explained by systematic Risk
R² = 70% (70% of the stocks price movement is explained by the market, remaining 30%
is due to unsystematic risk)
,R² shows how much of the asset's movement is explained by the market
Higher R² = More reliance on market movements, lower unsystematic risk
Measures the percentage of variability in the dependent variable explained by changes
in the independent variable
trying to identify benchmark? want R^2 closest to 1
Standard Deviation - correct answer TOTAL RISK
How much returns vary from the mean
Measure of Probability
Semivariance - correct answer Measures downside risk only (returns below the
mean)
Lower Semivariance = lower chance of large losses
Useful for risk averse investors.
Area Under the curve - correct answer Bell curve (Key probabilities:
, ±1 SD: 68% of outcomes
±2 SD: 95% of outcomes
±3 SD: 99% of outcomes
Kurtosis (peakedness of a distribution) - correct answer Measures whether a
distribution is more or less peaked than a normal distribution
Leptokurtic (sharp peak, fat tails) (taller) (more returns around mean)
Platykurtic (flat peak, thin tails) (shorter) (more returns spread out) (plat is flat)
Z-score - correct answer (data - mean) / Standard Deviation
Measures number of standard deviations a data value is from the mean (above or
below)
Data value > mean, z score will be positive
Data value < mean, z score will be negative
Sharpe Ratio - correct answer = (Portfolio Return − Risk-Free Rate) / Portfolio
Standard Deviation
(Latest Update ) with Verified
Answers 100 % Correct [Grade A]
Covariance - correct answer non standardized version of correlation coefficient
Measures the extent to which two variable (returns on investments) move together,
either positively (together) or negatively (opposite)
COVij = ρijσiσj
(pij = Correlation Coefficient)
&
(σi, σj = standard deviations of assets A and B)
adjust % (10% = .1) when calculating
Beta - correct answer measure of Systematic Risk (diversified & no unsystematic risk)
Market Beta =1
,Beta >1 = More Volatile than market (AGG) (1.25 = 25% more than volatile market)
Beta < 1 = Less Volatile than Market (Defensive) (.8 = 20% less volatile than market)
Port betas are more stable over time than indv securities.
Beta is meaningful if R² > .7
Portfolio Beta calulation - correct answer FMV a x B a = Product
Sum of all products / sum of FMV = PB
(weighted average calculation)
Coefficient of Determination R² - correct answer How much movement is explained by
the market?
Formula = R² = Correlation coefficient²
Measures the % of total risk explained by systematic Risk
R² = 70% (70% of the stocks price movement is explained by the market, remaining 30%
is due to unsystematic risk)
,R² shows how much of the asset's movement is explained by the market
Higher R² = More reliance on market movements, lower unsystematic risk
Measures the percentage of variability in the dependent variable explained by changes
in the independent variable
trying to identify benchmark? want R^2 closest to 1
Standard Deviation - correct answer TOTAL RISK
How much returns vary from the mean
Measure of Probability
Semivariance - correct answer Measures downside risk only (returns below the
mean)
Lower Semivariance = lower chance of large losses
Useful for risk averse investors.
Area Under the curve - correct answer Bell curve (Key probabilities:
, ±1 SD: 68% of outcomes
±2 SD: 95% of outcomes
±3 SD: 99% of outcomes
Kurtosis (peakedness of a distribution) - correct answer Measures whether a
distribution is more or less peaked than a normal distribution
Leptokurtic (sharp peak, fat tails) (taller) (more returns around mean)
Platykurtic (flat peak, thin tails) (shorter) (more returns spread out) (plat is flat)
Z-score - correct answer (data - mean) / Standard Deviation
Measures number of standard deviations a data value is from the mean (above or
below)
Data value > mean, z score will be positive
Data value < mean, z score will be negative
Sharpe Ratio - correct answer = (Portfolio Return − Risk-Free Rate) / Portfolio
Standard Deviation
