Investment Planning Flashcards
6 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Investment Planning flashcards as text
Which option strategy provides income while capping upside potential on a stock already owned?
Answer: Covered call
A covered call involves selling a call option on stock the investor already owns, generating premium income in exchange for capping upside gains.
A CFC is evaluating a mutual fund's performance using the Treynor ratio. The denominator used is:
Answer: Beta
The Treynor ratio measures excess return per unit of systematic risk (beta), unlike the Sharpe ratio which uses standard deviation.
Which portfolio construction approach assigns weights to asset classes based on their market capitalizations?
Answer: Market-cap-weighted (passive) allocation
Market-cap weighting, the basis of most index funds, allocates proportionally to each security's share of total market value.
In a rising interest rate environment, which bond characteristic minimizes price decline?
Answer: Short duration and high coupon
Short duration reduces price sensitivity to rate changes, and high coupons return principal faster, further limiting duration and price risk.
The Capital Asset Pricing Model (CAPM) calculates expected return using which inputs?
Answer: Risk-free rate, market risk premium, and beta
CAPM states that expected return equals the risk-free rate plus beta multiplied by the market risk premium.
A client holds a concentrated stock position with large unrealized gains. Which strategy transfers appreciation to heirs while retaining some income?
Answer: Charitable remainder trust (CRT)
A CRT allows the donor to contribute appreciated stock, receive an income stream, claim a partial charitable deduction, and ultimately transfer remainder to charity.