D.33 Investment Planning: Portfolio development and analysis

Question 1

Which of the following investment strategies would be most appropriate for an investor who wants to minimize risk while maintaining a moderate level of return?

A. Aggressive growth
B. Growth and income
C. Income
D. Balanced

Answer 1

D. Balanced

D.33 Investment Planning: Portfolio development and analysis

Question 2

Jane has a portfolio of stocks and bonds with a current value of $100,000. She wants to increase her exposure to international equities. Which of the following strategies would be most appropriate?

A. Buy individual foreign stocks
B. Invest in a foreign stock mutual fund
C. Purchase foreign currency
D. Invest in a foreign bond fund

Answer 2

B. Invest in a foreign stock mutual fund

D.33 Investment Planning: Portfolio development and analysis

Question 3

Which of the following factors is most likely to influence an investor’s willingness to take on risk in their investment portfolio?

A. Age
B. Income level
C. Investment goals
D. All of the above

Answer 3

D. All of the above

D.33 Investment Planning: Portfolio development and analysis

Question 4

An investor has a portfolio of stocks that have been performing poorly over the past year. Which of the following strategies would be most appropriate to address this situation?

A. Sell the underperforming stocks and invest in a different sector
B. Hold onto the underperforming stocks and wait for a rebound
C. Increase the allocation to the underperforming stocks to reduce overall risk
D. Invest in a stock mutual fund to diversify the portfolio

Answer 4

A. Sell the underperforming stocks and invest in a different sector

D.33 Investment Planning: Portfolio development and analysis

Question 5

An investor is interested in adding real estate to their portfolio. Which of the following investment vehicles would be most appropriate?

A. REITs
B. Physical real estate property
C. Real estate crowdfunding
D. All of the above

Answer 5

D. All of the above

D.33 Investment Planning: Portfolio development and analysis

Question 6

Which of the following asset classes is generally considered to be the least risky?

A. Stocks
B. Bonds
C. Commodities
D. Real estate

Answer 6

B. Bonds

D.33 Investment Planning: Portfolio development and analysis

Question 7

An investor is looking to build a portfolio that maximizes return for a given level of risk. Which of the following strategies would be most appropriate?

A. Asset allocation
B. Diversification
C. Market timing
D. All of the above

Answer 7

B. Diversification

D.33 Investment Planning: Portfolio development and analysis

Question 8

Which of the following strategies would be most appropriate for an investor who is nearing retirement and wants to reduce their exposure to risk?

A. Increase the allocation to growth stocks
B. Increase the allocation to high-yield bonds
C. Reduce the allocation to stocks and increase the allocation to bonds
D. Reduce the allocation to bonds and increase the allocation to stocks

Answer 8

C. Reduce the allocation to stocks and increase the allocation to bonds

D.33 Investment Planning: Portfolio development and analysis

Question 9

Which of the following is a measure of an investment’s volatility relative to the market?
A. Beta
B. Standard deviation
C. Sharpe ratio
D. Alpha

Answer 9

A. Beta

D.33 Investment Planning: Portfolio development and analysis

Question 10

An investor has a portfolio of large-cap stocks and wants to add exposure to small-cap stocks. Which of the following strategies would be most appropriate?

A. Buy individual small-cap stocks
B. Invest in a small-cap stock mutual fund
C. Purchase small-cap stock options
D. All of the above

Answer 10

B. Invest in a small-cap stock mutual fund

D.33 Investment Planning: Portfolio development and analysis

Question 11

Which of the following factors is most likely to influence an investor’s investment horizon?

A. Age
B. Income level
C. Risk tolerance
D. All of the above

Answer 11

A. Age

D.33 Investment Planning: Portfolio development and analysis

Question 12

Which of the following strategies is most likely to reduce the risk of an investment portfolio?

A. Investing in a single stock
B. Investing in a mutual fund
C. Investing in a commodity futures contract
D. Investing in a currency ETF

Answer 12

B. Investing in a mutual fund

D.33 Investment Planning: Portfolio development and analysis

Question 13

An investor is interested in adding exposure to emerging markets to their portfolio. Which of the following strategies would be most appropriate?

A. Buy individual emerging market stocks
B. Invest in an emerging market stock mutual fund
C. Purchase emerging market bond ETFs
D. All of the above

Answer 13

B. Invest in an emerging market stock mutual fund

D.33 Investment Planning: Portfolio development and analysis

Question 14

Which of the following is a measure of an investment’s risk-adjusted return?

A. Beta
B. Standard deviation
C. Sharpe ratio
D. Alpha

Answer 14

C. Sharpe ratio

D.33 Investment Planning: Portfolio development and analysis

Question 15

An investor has a portfolio of stocks and bonds and wants to add exposure to real estate. Which of the following strategies would be most appropriate?

A. Buy individual real estate properties
B. Invest in a real estate mutual fund
C. Purchase real estate investment trusts (REITs)
D. All Of the above

Answer 15

D. All Of the above

D.33 Investment Planning: Portfolio development and analysis

Question 16

Which of the following is a measure of an investment’s risk relative to its benchmark?

A. Beta
B. Standard deviation
C. Sharpe ratio
D. Alpha

Answer 16

A. Beta

D.33 Investment Planning: Portfolio development and analysis

Question 17

An investor has a portfolio of stocks and wants to add a broad exposure to commodities. Which of the following strategies would be most appropriate?

A. Buy individual commodities
B. Invest in a commodity mutual fund
C. Purchase commodity futures contracts
D. All of the above

Answer 17

B. Invest in a commodity mutual fund

D.33 Investment Planning: Portfolio development and analysis

Question 18

Maria has $25,000 she wants to invest from her portfolio into fixed income securities. Her primary goals are to ensure the principal remains safe, earn a modest income, and have an opportunity to offset inflation over time. Which of the following would be the **most appropriate **investment choice for Maria?

A. Municipal bonds
B. Junk corporate bonds
C. Long-term zero coupon bonds
D. Treasury inflation-protected securities (TIPS)

Answer 18

D. Treasury inflation-protected securities (TIPS)

D.33 Investment Planning: Portfolio development and analysis

Question 19

Sarah is a 29-year-old lawyer who falls into the 35% marginal tax bracket. She has already set up a sufficient emergency fund and possesses a moderate risk tolerance. She now has $15,000 she wishes to invest for a period of 10 years. Given the options below, which investment would be the most suitable for Sarah?

A. Municipal bond funds with a 2.5% average 10-year annual total investment return
B. Growth common stock fund with a 6.5% average 10-year annual total investment return
C. International stock fund with a 9% average 10-year annual total investment return
D. A blue chip common stock with an 8.5% average 10-year annual total investment return

Answer 19

A. Municipal bond funds with a 2.5% average 10-year annual total investment return.

D.33 Investment Planning: Portfolio development and analysis

Question 20

Elena is a financial planner working with a client who is looking to rebalance their investment portfolio. The client’s current portfolio consists of 70% stocks, 20% bonds, and 10% real estate. The client’s risk tolerance has decreased due to nearing retirement, and they wish to adjust their portfolio to a more conservative allocation. Elena suggests modifying the portfolio to 50% stocks, 40% bonds, and 10% real estate. Which of the following is the primary reason for Elena’s recommended change in the portfolio allocation?

A. To increase the portfolio’s potential for high returns.
B. To decrease the portfolio’s overall risk exposure.
C. To take advantage of tax incentives associated with bond investments.
D. To align the portfolio with current market trends.

Answer 20

B. To decrease the portfolio’s overall risk exposure.

The primary reason for adjusting the portfolio to include a higher percentage of bonds and a lower percentage of stocks is to decrease the overall risk exposure of the portfolio. As clients approach retirement, they typically seek to reduce risk in their investment strategy to preserve capital and ensure steady income. Bonds generally offer lower risk and more stable returns compared to stocks, making them a suitable choice for someone with a decreased risk tolerance. This strategic shift aligns with the client’s changing risk tolerance as they near retirement, ensuring that the portfolio better matches their current financial goals and needs.

D.33 Investment Planning: Portfolio development and analysis