Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
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.
Investing in a mixed portfolio of stocks, bonds, and cash-equivalent instruments is an example of _______.
Asset allocation. This is the practice of apportioning investment capital among different asset classes, such as stocks, bonds, and cash-equivalent instruments.
5.
All of the following are elements of risk tolerance except _______.
None of the above. All of these are elements of an investor's risk tolerance.