CFC Investment Planning 2

Question 1

A CFC client wants income with low credit risk. Which bond type is most appropriate?

Accepted Answer

U.S. Treasury bonds

Answer

U.S. Treasury bonds carry the full faith and credit of the federal government, making them the lowest credit-risk fixed-income option.

Question 2

The price-to-earnings (P/E) ratio is most useful for comparing companies within the same:

Accepted Answer

Industry

Answer

P/E ratios are most meaningful when comparing companies in the same industry because growth rates and capital structures differ across sectors.

Question 3

Which investment vehicle allows a CFC client to gain diversified exposure to real estate without directly owning property?

Accepted Answer

Real Estate Investment Trust (REIT)

Answer

REITs are publicly traded companies that own income-producing real estate and must distribute at least 90% of taxable income to shareholders.

Question 4

Dollar-cost averaging benefits investors primarily by:

Accepted Answer

Reducing the average cost per share when prices fluctuate

Answer

By investing fixed amounts regularly, investors automatically buy more shares when prices are low and fewer when high, lowering the average cost per share.

Question 5

Which measure best captures the total variability of returns around the mean for a portfolio?

Accepted Answer

Standard deviation

Answer

Standard deviation quantifies total risk by measuring how widely returns are dispersed around their average, capturing both systematic and unsystematic risk.

CFC - Certified Financial Consultant Practice Test

CFC - Certified Financial Consultant Practice Test

CFC Investment Planning 2