Quiz 3

Name

Id number

1. The shortest time horizons are likely to be set by:

A. Banks B. Pension funds C. Mutual funds D. all of them
2. The possibility that you are too conservative and your money doesn't grow fast enough to keep pace
with inflation is called:
A. purchasing power risk B. liquidity risk
C. timing risk D. market risk
3. Just 2 months after you put money into an investment, its price falls 25%. Assuming that none of
the investment fundamentals have changed, which of the following actions would evidence the
greatest risk tolerance?
A. You sell to avoid further worry and buy B. You do nothing and wait for the
something else. investment to come back.
C. You buy more, thinking that if it was a D. You sue your financial adviser.
good investment before, now it's not only good
but cheap too.
4. At the early stage of an individual's working career, his or her retirement portfolio should probably
consist mostly of :
A. Stocks B. Governmental C. Corporate bonds D. Treasury bills
bonds
5. The two most important factors in describing an individual's or organization's investment objectives
are:
A. income level and age B. income level and risk tolerance
C. return requirement and risk tolerance D. age and risk tolerance

6. Empirical evidence confirms that investors become __________ as they approach retirement.
A. greedier B. less interested in investments
C. more risk averse D. more risk tolerant
7. An investor has a long time horizon and desires to earn the market rate of return. However, the
investor will need to withdraw funds each year from her investment portfolio. The biggest constraint a
planner would face with this client is a ___________ constraint.
A. tax B. risk tolerance C. liquidity D. regulatory
8. The term investment horizon refers to __________.
A. the proportion of short-term to long-term investments held in an investor's portfolio
B. the planned liquidation date of an investment
C. the average maturity date of investments held in a portfolio
D. the maturity date of the longest investment in the portfolio
9. Liquidity is:
A. the ease with which an asset can be sold.
B. the ability to sell an asset for a fair price.
C. the degree of inflation protection an asset provides.
D. All of these are true.
 E. the ease with which an asset can be sold and the ability to sell an asset for a fair price.
10. The stage an individual is in his/her life cycle will affect his/her __________.
A. return requirements
B. risk tolerance
C. asset allocation
D. All of the above
1. At the early stage of an individual's working career, his or her retirement portfolio should probably
consist mostly of _______.
A. annuities
B. stocks
C. bonds
D. commodities
2. __________ refer to strategies aimed at attaining the established rate of return requirements while
meeting expressed risk tolerance and applicable constraints.
A. Investment constraints
B. Investment objectives
C. Investment policies
D. All of these are true.
E. None of these is true.
3. Just 2 months after you put money into an investment, its price falls 25%. Assuming that none of the
investment fundamentals have changed, which of the following actions would evidence the greatest
risk tolerance?
A. You sell to avoid further worry and buy something else.
B. You do nothing and wait for the investment to come back.
C. You buy more, thinking that if it was a good investment before, now it's not only good but cheap too.
D. You sue your financial adviser.
4. The __________ the proportion of total return that is in the form of price appreciation, the
__________ will be the value of the tax-deferral option for taxable investors.
A. greater, greater
B. greater, lower
C. lower, greater
D. cannot tell from the information given.
5. The two most important factors in describing an individual's or organization's investment objectives
are ________________.
A. income level and age
B. income level and risk tolerance
C. age and risk tolerance
D. return requirement and risk tolerance
6. The price of your investment increases 20% one month after you buy it. You do not believe that the
stock's prospects have changed. Which one of the following actions would indicate the lowest amount
of risk aversion?
A. You hang on to the stock, anticipating that it will go higher.
B. You buy more stock, anticipating that it will go higher.
C. You sell all of your stock holdings immediately.
D. You sell half of your stock holdings and invest the proceeds in other areas of your portfolio.
7. The possibility that you are too conservative and your money doesn't grow fast enough to keep pace
with inflation is called ________.
 A. purchasing power risk
B. liquidity risk
C. timing risk
D. market risk
8. Empirical evidence confirms that investors become __________ as they approach retirement.
A. greedier
B. less interested in investments
C. more risk averse
D. more risk tolerant
9. An investor has a long time horizon and desires to earn the market rate of return. However, the
investor will need to withdraw funds each year from her investment portfolio. The biggest constraint
a planner would face with this client is a ___________ constraint.
A. tax
B. risk-tolerance
C. liquidity
D. social