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1.
Asset allocation is the practice of dividing investment assets among different markets.
True. Asset allocation is the practice of dividing investment assets among different markets to achieve diversification and a balance between risk and return consistent with an investor's objective.
2.
With the multi-fund approach to asset allocation, each transaction can have costs associated with both the sale and purchase of fund shares.
True. Each time an investor using the multi-fund approach makes a change in the allocation, it may involve the liquidation of one fund's shares and the purchase of another. Such transactions can have costs associated with both the sale of the old shares and the purchase of the new ones.
3.
If you select a mutual fund that invests in bonds, preferred stocks, and blue chip stocks, you most likely have selected a(n) _______.
Conservative fund. Current income, through bonds and preferred and blue chip stocks, is often the primary objective of a conservative fund.
4.
An asset allocation mutual fund spreads its portfolio among only a handful of investments.
False. An asset allocation mutual fund spreads its portfolio among a wide variety of investments, including domestic and foreign stocks and bonds, government securities, cash, gold, and real estate stocks.
5.
Which of the following is true regarding the relationship between passive and active asset allocation?
Active allocation is generally more expensive. Active allocation can be considerably more expensive because each reallocation can result in the liquidation of shares of one or more securities in exchange for shares of new securities.