Financial Planning Body of Knowledge
The Financial Planning Body of Knowledge (FP-BoK) describes knowledge expected of CFP® professionals
and QAFPTM professionals.
Measurement of Risk-Adjusted Return
KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals
- 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)
Read more about the Taxonomy used in the FP-BoK
To state exactly the meaning of
To be aware of / to recognize and correctly name / to locate an appropriate resource
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
To note the similarities and differences between two or more things
To determine an approximate value for
To find the value using mathematics
To change from one form or purpose to another
To reach a conclusion or make a judgement through careful study
To give the meaning of / to construe or understand / to translate orally