11.3

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Principle 8, Risk and Return go hand in hand, tells us that you ________ as the length of the investment horizon ________. A) can afford to take on additional risk; increases B) can afford to take on additional risk; decreases C) cannot afford not to take on additional risk; shortens D) cannot afford to take on additional risk; increases

A) can afford to take on additional risk; increases

Is it possible to both accumulate wealth and preserve wealth with the same asset allocation strategy? A) Yes, a well-constructed portfolio can achieve both goals effectively. B) No, there are conflicting risks that are contrary to achieving both goals with the same asset classes. C) Yes, a diversified bond portfolio is appropriate for all investors. D) No, a diversified stock portfolio is too risky for the typical young investor.

B) No, there are conflicting risks that are contrary to achieving both goals with the same asset classes.

Which of the following statements regarding risk in investing is most correct? A) Avoiding risk is the best strategy to accumulate wealth. B) It is most important to avoid risk during the early years, up to age 54. C) It is hard to achieve a positive real return by avoiding risk all together. D) Trying to avoid risk is an exercise in futility.

C) It is hard to achieve a positive real return by avoiding risk all together.

Investing prior to age 54 is a time of ________ by investing the majority of oneʹs savings into ________. A) wealth preservation; conservative funds B) wealth preservation; preferred stocks C) wealth accumulation; common stocks D) wealth accumulation; bonds E) wealth dispersal; common and preferred stocks

C) wealth accumulation; common stocks

Cretia Robritti discovered that the purpose of asset allocation is to ensure that the investor is ________, generally with holdings in several different ________ of investments. A) protected; denominations B) well diversified; amounts C) well diversified; classes D) evenly distributed; classes E) evenly distributed; amounts

C) well diversified; classes

For individuals in their golden years who are approaching retirement, a mix of ________ percent common stocks and ________ percent bonds is a relatively common recommendation from financial planners. A) 20, 80 B) 80, 20 C) 40, 60 D) 60, 40 E) none of the above

D) 60, 40

What does an effective asset allocation strategy provide to an investor? A) An effective diversification strategy B) An opportunity to maximize their returns based on appropriate risk. C) An opportunity to minimize their losses based on appropriate risk. D) All of the above are correct E) All but A are correct.

D) All of the above are correct

As a young college graduate, your biggest investment ally is A) leverage. B) the amount of investment. C) tax-free investments. D) time. E) the class of investments.

D) Time

Asset allocation has to do with how your money should be divided among which of the following? A) Stocks B) Corporate bonds C) Government bonds D) Real estate E) All of the above

E) All of the above

Which of the following statements is not true of asset allocation? A) Investments are spread across several different investment classes. B) Investments reflect the investorʹs specific time horizon. C) Allocation may be made in domestic stocks and bonds. D) Allocation may be made in international stocks and bonds. E) All of the above statements are true.

E) All of the above statements are true

Why should a younger investor, saving for the long term, have most of their money in common stocks? A) Over time, common stocks generate the largest average returns. B) Investors with lots of time ahead of them have the opportunity to recover from a serious investment set-back. C) They require the least amount of knowledge, research and expense. D) All of the above are correct. E) Only A and B are correct.

E) Only A and B are correct.

Why should investors with a short investment horizon invest less money in common stocks? A) Because the stock market is very volatile and a catastrophic market event can happen at any time. B) Because the investors wonʹt have enough time available to effectively recover from a loss of their investment principle. C) Because the transaction costs will negatively affect their returns in the short-term. D) All of the above are correct. E) Only A and B are correct.

E) Only A and B are correct.


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