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1.
The risk-return tradeoff concept states that _______.
The riskier an investment is, the greater its potential return should be. The risk-return tradeoff also states that safe investments usually yield low returns, and vice versa.
2.
A 75-year-old couple investing their life savings are likely to have _______.
Conservative risk tolerance. A 75-year-old couple investing their life savings will need to protect their capital, and are likely to have conservative risk tolerance.
3.
"Getting the most return for a given risk, and taking on the least risk for a given return" is a simple statement of _______.
Modern Portfolio Theory. This is the theory that portfolios should and can be managed to provide the most return for a given level of risk, and should take on the least possible risk to achieve a given return.
4.
Which of the following questions is the best indicator of your risk tolerance?
Can you afford to lose your money? The financial consequences of poorly performing investments are the biggest determinants of your risk tolerance.
5.
A 32-year-old investing for retirement is likely to have _______.
Aggressive risk tolerance. A 32-year-old investing for retirement has a long time to hold investments; that time will allow long-term growth trends to overcome short-term price fluctuations, giving our investor an aggressive risk tolerance.