BoK Statement

Explain the expected risk-adjusted return for an investment using the Capital Asset Pricing Model.
Calculate the expected risk-adjusted return for an investment using the Capital Asset Pricing Model.
Interpret the expected risk-adjusted return for an investment using the Capital Asset Pricing Model.
Define measurements of risk-adjusted return, such as:
- Sharpe Ratio
- Treynor Ratio
- Jensen Index
Identify when the use of each measurement of risk-adjusted return is appropriate.
Explain each of the measurements of risk-adjusted return.
Interpret each of the measurements of risk-adjusted return.
Define a benchmark.
Identify characteristics of a benchmark, such as:
- Same risk as the portfolio.
- Specified in advance
- Objectively constructed
- Easily measureable
Identify benchmarks that realized returns may be compared with in assessing performance, such as:
- Market indices
- Other similarly constructed investments
- Required rate of return to meet goal
Compare the risk-adjusted return of an investment to the risk-adjusted return of its benchmark.

Glossary of Verbs (mouse over to see definition)

Define

To state exactly the meaning of

Identify

To be aware of / to recognize and correctly name / to locate an appropriate resource

Explain

To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it

Compare

To note the similarities and differences between two or more things

Estimate

To determine an approximate value for

Calculate

To find the value using mathematics

Convert

To change from one form or purpose to another

Evaluate

To reach a conclusion or make a judgement through careful study

Interpret

To give the meaning of / to construe or understand / to translate orally

Read more about the Taxonomy used in the FP-BoK

Financial Planning Body of Knowledge