Professional Knowledge Flashcards
7 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Professional Knowledge flashcards as text
Which valuation method discounts a company's expected future cash flows to present value?
Answer: Discounted cash flow (DCF)
DCF estimates intrinsic value by discounting projected cash flows at an appropriate rate.
In estate planning, what is the main advantage of establishing a revocable living trust?
Answer: Avoiding probate on transferred assets
Assets held in a revocable trust pass to beneficiaries without going through probate.
A bond's price will generally do what when market interest rates rise?
Answer: Fall
Bond prices move inversely to interest rates, so rising rates push existing bond prices down.
What does the Sharpe ratio measure?
Answer: Risk-adjusted return per unit of total risk
The Sharpe ratio divides excess return by standard deviation to gauge return earned per unit of risk.
Which retirement account allows qualified withdrawals to be tax-free in the U.S.?
Answer: Roth IRA
Roth IRA contributions are made after tax, so qualified withdrawals of contributions and earnings are tax-free.
The 'efficient frontier' in portfolio theory represents portfolios that offer what?
Answer: Maximum expected return for a given level of risk
The efficient frontier plots optimal portfolios maximizing return for each risk level.
What is the primary benefit of dollar-cost averaging?
Answer: Reducing the impact of market volatility over time
Investing fixed amounts regularly buys more shares when prices are low and fewer when high, smoothing cost.