CPS Exam Preparation and CPS Certification Process 2

Question 1

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

Accepted Answer

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

Answer

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

Question 2

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

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

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

Answer

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

Question 4

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

Accepted Answer

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

Answer

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

Question 5

What does the CPS curriculum typically cover regarding fixed income?

Accepted Answer

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

Answer

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

CPS - Certified Portfolio Specialist Practice Test

CPS - Certified Portfolio Specialist Practice Test

CPS Exam Preparation and CPS Certification Process 2