FPQP FPQP Risk Management 2

Question 1

Which measure quantifies the volatility of a portfolio relative to a benchmark index?

Accepted Answer

Beta

Answer

Beta measures a portfolio's sensitivity to benchmark movements; a beta above 1.0 indicates greater volatility than the market.

Question 2

A client's risk tolerance questionnaire indicates high willingness but low ability to take risk. A paraplanner should recommend a portfolio based on:

Accepted Answer

Ability to take risk

Answer

When willingness and ability to take risk conflict, the more conservative measure—ability—should govern the recommended portfolio.

Question 3

Reinvestment risk is primarily a concern when interest rates:

Accepted Answer

Fall significantly

Answer

When rates fall, coupon payments and maturing bond proceeds must be reinvested at lower prevailing rates, reducing overall income.

Question 4

Which insurance product is specifically designed to transfer longevity risk from a client to an insurance company?

Accepted Answer

Deferred income annuity

Answer

A deferred income annuity (DIA) provides guaranteed income starting at a future date, transferring the risk of outliving assets to the insurer.

Question 5

What does a Sharpe ratio measure?

Accepted Answer

Excess return per unit of total risk

Answer

The Sharpe ratio divides a portfolio's excess return above the risk-free rate by its standard deviation, indicating return earned per unit of risk.

FPQP - Financial Paraplanner Qualified Professional Practice Test