FIN Chapter 21
Which of the following rates of inflation is appropriate to consider for a long-term investor?
3% - The average inflation over the past 80 years
Which is the largest loss an investor can reasonably expect over a two- or three-year period for a highly diversified portfolio, such as the S&P500?
40%. The bear markets of 2000-2002 and 2007-2008 resulted in losses of about 40%
In order to protect principle against possible loss caused by distressed selling, individuals are typically recommended to have a:
6-month emergency fund
Which of the following is not a change in investor's circumstance that may require a review of portfolio policies?
A change in interest rates
Which of the following is not an appropriate investment objective for the individual situation cited?
A person approaching retirement finds he has little or no retirement assets, so he shifts into riskier investments to build up retirement assets
Which of the following is not part of the process of ongoing portfolio management?
Assume additional risk to compensate for any previous investment losses incurred
Which of the following is the best description of the objective of portfolio management?
Choosing an appropriate balance of risk and reward
A portfolio consisting of 50% guaranteed, 10% fixed income, 10% real estate, 30% equities, would be most appropriate for which type of investor?
Conservative
Which of the following is not one of the portfolio management process steps?
Identify expenditure patterns that help the investor meet his objectives
Which of the following is not one of the issues included in investment strategies?
Investment objectives
Which of the following is consistent with the life-cycle theory?
Older investors become more risk averse
Which of the following is the best description of the difference between strategic and tactical asset allocation?
Strategic allocation is done every year or two; tactical allocation is done more routinely
Which of the following is not included in the implementation of investing strategies?
Tax considerations
Which of the following is a possible disadvantage of rebalancing a portfolio?
Taxable accounts pay capital gains tax when holdings are sold
Which of the following is not a factor to consider in determining asset allocation?
The investor's investment strategy
