1. Investors are willing to take on more risk in all of the following situations except
low initial price to make the investment
higher probability of success from the investment
the amount invested is small compared to total wealth of the individual
more risk than in a comparable investment
2. A financial planner has two investment options. Option A has a 50% chance of $5000 and a 50% chance of $1000. Option B has a 30% chance of $8,000 and a 70% chance of $500. Which one should he recommend?
Option A
Option B
Either, both options are acceptable
3. You have a client to whom you give a risk assessment test. The scale is 1 to 10 with 1 meaning the person has a low tolerance for risk and 10 meaning the person has a high tolerance for risk. Which of the following is correct?
If your client scores a 7 (moderately high tolerance), you would use that level when preparing the portfolio.
If your client scores a 7 (moderately high tolerance), you would use a level below that such as 6 when preparing the portfolio.
If your client scores a 7 (moderately high tolerance), you would use that level above that such as an 8 when preparing the portfolio.
4. Which of the following pairs are incompatible goals?
capital appreciation; growth of income
growth of income; income
income; stability of principle
stability of principle; growth of income
5. Which of the following is not part of a fiduciary duty?
a fiduciary must manage with modern portfolio theory concepts
a fiduciary must diversify the portfolio
a fiduciary does not have discretion over the funds
a fiduciary can do social investing if it is documented
6. In which type of portfolio management does one primarily hold index funds?
market timing
passive asset allocation
active asset allocation
insider allocation
7. Which of the following is FALSE?
most investors won’t make a bet unless they think their chance for success is 50%
most investors worry more about losses than they do gains
as investors increase their wealth, they need greater returns to be as satisfied as before
for success the satisfaction investors get from investing must match the time frame of the investment
8. Which of the following is NOT a common portfolio mistake?
not rebalancing consistently
not using company-sponsored plans
not approaching risk consistently
owning too little company stock
9. Which type of efficiency means that prices reflect past information?
weak
semi-strong
strong
10. This type of efficiency says that market prices reflect all public information
weak form
semi-strong form
strong form