Exam Preparation and CPS Certification Process Flashcards

What topic area related to Modern Portfolio Theory should CPS candidates understand?

Answer: The relationship between risk and return, diversification, and the efficient frontier

Modern Portfolio Theory (MPT) is foundational to CPS content, covering how diversification reduces risk and the efficient frontier concept.

Which performance measurement concept is important for CPS exam candidates to understand?

Answer: Risk-adjusted return measures like Sharpe Ratio, Treynor Ratio, and Alpha

Risk-adjusted performance measures such as Sharpe Ratio, Treynor Ratio, and Jensen's Alpha are key tools for evaluating portfolio performance tested on the CPS exam.

What should CPS candidates know about the Capital Asset Pricing Model (CAPM)?

Answer: It describes the relationship between systematic risk (beta) and expected return

CAPM establishes that expected return on an investment equals the risk-free rate plus the investment's beta times the market risk premium.

What is Jensen's Alpha and why is it important for the CPS exam?

Answer: A measure of portfolio performance versus what CAPM would predict given the portfolio's beta

Jensen's Alpha measures how much a portfolio outperformed or underperformed relative to what CAPM predicted given its level of systematic risk.

What does the CPS curriculum typically cover regarding fixed income?

Answer: Duration, convexity, yield curves, credit analysis, and bond portfolio strategies

The CPS fixed income curriculum covers duration, convexity, interest rate risk, credit analysis, yield curve strategies, and portfolio construction techniques.

Which topic area regarding client relationships is covered in CPS exam preparation?

Answer: Investment policy statement creation and matching portfolios to client goals and risk tolerance

CPS exam preparation includes understanding how to create investment policy statements and construct portfolios aligned with individual client goals, constraints, and risk profiles.