Choose wisely. There is only one correct answer to each question.
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1.
A risk-averse investor _______.
Takes on only as much risk as necessary. The risk-averse does this to achieve the level of return he or she seeks. Risk-averse investors also wish to maximize the returns they get for the level of risk they take on.
2.
Managing risk can help you take advantage of risk without conflicting with your risk tolerance.
True. Diversification and maximizing your investment time horizon can minimize the negative impact of risk on your investments, allowing you to take on more risk in segments of your investment portfolio.
3.
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.
4.
"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.
5.
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.