PART 1

1. Explain why focusing only on the potential for loss in a portfolio is insufficient in explaining what investment risk really is

2. Distinguish between inflation risk and inflation as tax

PART 2

1. Distinguish among the following risk measurement terms: beta, r-squared, covariance, and correlation coefficient

2. Define the nature of probability distributions and the two types associated with them

3. Discuss the importance of an investment advisor being able to explain to his or her client why a mutual fund characterized by a very low standard deviation could be riskier than a similar type fund with a higher absolute number

4. Discuss the problem raised when calculating standard deviation using probability distributions

PART 3

1. Briefly discuss the main disadvantage of relying too heavily upon a mathematical "solution" to a financial planning task

2. Explain how the valuation formula of a perpetual bond, for time value purposes, is most useful

3. Distinguish between the results arrived at after calculating for (a) an ordinary annuity payment and, (b) an annuity due payment

4. Discuss what is mean by the "effective annual rate" when there is more than one compounding period in a year