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CFP Certification Exam: Investments
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The CFP Certification exam's investment content focuses on applying investment theory to real-world client scenarios, covering asset classes, portfolio construction, risk management, and performance analysis. Key topics include security types, valuation, asset allocation, and regulatory compliance, with a strong emphasis on aligning investment strategies with client objectives.  Key Investment Content Areas (FPSB India/Global CFP Standards) Investment Theory and Principles: Understanding market cycles, risk-return trade-offs, and investment philosophies. Asset Classes and Securities:... Show more
CFP Certification Exam: Investments
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25 Questions

1. Which of the following securities are backed by the full faith and credit of the US government?
2. When a bond is selling at a premium to par, the YTM will always be __________ the bond’s coupon rate. If a bond is selling at a discount to par, the YTM will always be __________ the bond’s coupon rate.
3. All but which of the following are characteristics of a REIT?
4. The purpose of the Black-Scholes valuation model is to determine the value of a __________ option of a __________ paying stock.
5. Which of the following are characteristics of EE bonds?
(1) May be purchased for an amount that is equal to one-half of face value
(2) May be purchased for a minimum price of $25 for a $50 bond
(3) US Treasury guarantees an EE bond's value will double after 10 years
(4) May be purchased for a maximum price of $5,000 for a $10,000 bond
6. The initial margin percentage is currently __________ as established by Regulation T of the Federal Reserve Board.
7. Which of the following are liquidity ratios?
(1) Current ratio
(2) Debt-to-equity ratio
(3) Quick ratio
(4) Fixed asset turnover ratio
8. A large interest rate change has the most significant effect on a __________ bond.
9. How is the net asset value (NAV) of a mutual fund calculated?
10. Which of the following investments will provide tax-exempt interest if the proceeds are used to pay for qualifying education expenses?
(1) FNMA funds
(2) EE bonds
(3) Treasury bonds
(4) Treasury bills
11. Which of the following is/are correct regarding beta?
(1) Beta is used to measure the amount of unsystematic risk in an investor’s portfolio.
(2) A portfolio’s beta can be positive or equal to zero, but cannot be negative.
12. Which of the following is/are correct regarding the capital structure of open-end mutual funds?
(1) Open-end mutual funds issue new shares and redeem existing shares from shareholders.
(2) The price an investor pays when buying shares of an open-end mutual fund is based on supply and demand.
13. Which of the following are characteristics of guaranteed investment contracts (GICs)?
(1) GICs are sold by insurance companies primarily to mutual fund companies.
(2) GICs provide higher returns than savings accounts and US Treasury securities.
(3) The rate of return is guaranteed for a fixed period of time, such as five years.
(4) Returns for GICs are generally lower than equities because little risk is involved.
14. Which of the following will shift the Markowitz efficient frontier upward and to the left?
15. According to the principles of behavioral finance, which theory suggests that investors typically fear losses more than they value gains? As a result, investors will often choose the smaller of two potential gains if it avoids a highly probable loss.
16. Which of the following is/are correct regarding registered bonds and bearer bonds?
(1) A registered bond is registered with the corporation or organization that issued the bond, and coupon payments are made to the owner of record.
(2) A bearer bond can be transferred like cash, and coupon payments are made to the person who holds the bond.
17. Which of the following is/are correct regarding cyclical stocks?
(1) When the economy is growing, demand usually strengthens and cyclical companies are able to make large profits.
(2) When the economy is declining, cyclical companies are hurt by decreases in demand and are less profitable.
18. The duration of a coupon bond is always __________ its term to maturity. A zero-coupon bond’s duration is always __________ its term to maturity.
19. Buying a __________ and selling a __________ are both bullish strategies.
20. All but which of the following are characteristics of exchange-traded funds (ETFs)?
21. Which of the following is/are correct regarding interest paid from municipal bonds?
(1) Interest paid from municipal bonds is not taxed by the federal government.
(2) Interest paid from municipal bonds is never taxable at the state level.
22. Assume that ABC stock pays a constant dividend of $5 per share each year. The dividend is not expected to grow. Also assume that an investor has a required rate of return of 10%. What is the intrinsic value of ABC stock?
23. Which of the following is correct regarding certificates of deposit (CDs)?
24. When an investment company puts home mortgages or other loans into a pool and then sells securities representing shares of the pool, the securities sold are referred to as which of the following?
25. Which of the following describes the relationship between total risk, systematic risk, and unsystematic risk?

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