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1.
Risk tolerance is the amount of risk with which you are comfortable.
True. It determines your choices of investments, among many other things.
2.
Investment portfolios can be called efficient when they ________.
Contain the best possible mixes of assets for a specific risk level and return. Efficiency is relative to the kind of objective that you are trying to fulfill.
3.
An investor can diversify by investing in different regions of the world.
True. One can diversify in many ways. Choosing different regions is one way.
4.
The chance of experiencing inflation is an example of unsystematic risk.
False. Inflation influences all companies as well as the entire economy. Diversification cannot eliminate the risk of facing inflation. Therefore, it is a systematic risk.
5.
A fall in price of one security in a diversified portfolio may be offset by an increase in price of another.
True. Problems in one industry may lead people to seek the products or services of another in your portfolio.
6.
Diversifying your stock portfolio among different companies or _______ can reduce risks that are specific to a company.
Industries. Sometimes, a problem that hits one company in an industry can hit others in that industry.
7.
You have invested in a portfolio that has only two stocks. You observe that every time one stock goes up in price, the other goes down. The two stocks are _______ correlated.
Negatively. Investments with prices that move opposite to each other are correlated negatively.