1. Apply What You've Learned - Investment Fundamentals Scenario: You are 40 years old. Your investment portfolio currently consists of: (1) a savings account, with a $18,000 balance, (2) certificates of deposit (CDs) worth $27,000, and (3) an investment portfolio consisting of 40% bonds, 40% equities, and 20% cash and cash equivalents. Your bonds are thirty-year U.S. government bonds, while your equities are made up solely of your employer's stock. Your cash holdings consist of your savings account and CDs. Your employer's stock paid a 1% dividend and its market value has increased 10% over the last year. The bonds have paid 3.0% interest. The rate of inflation is 2.5%. Your investment goals are mainly focused on retirement, and you have no large purchases planned in the short term. . This consists of in cash and cash equivalents, in The value of your current investment portfolio is bonds, and in equities. Given the existing composition of your investment portfolio, how would you characteristic your investment strategy? Is it conservative, moderate, or aggressive? The investment strategy is aggressive. The investment strategy is moderate. The investment strategy is conservative. Given the existing composition of your investment portfolio, how would you characterize your risk tolerance? Are you risk averse, risk neutral, or risk seeking? You appear to be risk averse. You appear to be risk seeking. You appear to be risk neutral. Think about the government bonds in your portfolio. To what kind of risk are you most susceptible because of this investment? Foreign exchange risk Marketability risk Inflation risk Business failure risk Liquidity risk The real return on your government bonds is Think about the stock in your investment portfolio. To what type of risk (or risks) are you most susceptible? Only random, or unsystematic, risk Both market (systematic) and random (unsystematic) risks Only liquidity risk Pure risk Only market, or systematic, risk Do you perceive a deficiency of some type in your equity holdings, and if so, of what type? No, it is better to invest in one company that you know really well than in companies you don't know as well No, my current equity holdings are appropriately diversified Yes, my current equity holdings are inadequately diversified Yes, according to the concept of asset allocation, I have too much stock in my portfolio Consider the following table of recommended asset allocation percentages of cash/bonds/equity: Risk tolerance / Investment strategy Low risk / Conservative Moderate risk / Moderate High risk / Aggressive 0-5 years 35 / 40 / 25 20 / 40 / 40 10 / 30 / 60 6-10 years 11+ years 20 / 40 / 40 10/30 / 60 10 / 30 / 600 / 20/ 80 0/ 20 / 80 0/0/100 If you believe that the allocation of assets in your portfolio should be modified to meet your retirement needs, then it is recommended that your holding of: Check all that apply. Cash and cash equivalents be increased Bonds be increased Equities be decreased Cash and cash equivalents be decreased Bonds be decreased Equities be increased Financial experts recommend that you should review and rebalance your investment portfolio at least once every Which of the following statements is true regarding the dollar-cost averaging strategy? Check all that apply. For this strategy to be successful, you must be lucky and knowledgeable; discipline is irrelevant. An advantage of dollar-cost averaging is that it imposes-and requires-investor discipline. An advantage of dollar-cost averaging is that it can reduce the average cost of purchased shares over a long investment period. Using this strategy, you can purchase a larger number of shares in a rising market than in a declining market. Dollar-cost averaging is successful in a rising, fluctuating, or declining market. As a long-term investor, how should you respond to a bear market? Hold tight; do not sell, but do not continue investing. Continue with your investment plan; it is good to buy while the prices are low. Sell quickly to "stop the bleeding." 1. Apply What You've Learned - Investment Fundamentals Scenario: You are 40 years old. Your investment portfolio currently consists of: (1) a savings account, with a $18,000 balance, (2) certificates of deposit (CDs) worth $27,000, and (3) an investment portfolio consisting of 40% bonds, 40% equities, and 20% cash and cash equivalents. Your bonds are thirty-year U.S. government bonds, while your equities are made up solely of your employer's stock. Your cash holdings consist of your savings account and CDs. Your employer's stock paid a 1% dividend and its market value has increased 10% over the last year. The bonds have paid 3.0% interest. The rate of inflation is 2.5%. Your investment goals are mainly focused on retirement, and you have no large purchases planned in the short term. . This consists of in cash and cash equivalents, in The value of your current investment portfolio is bonds, and in equities. Given the existing composition of your investment portfolio, how would you characteristic your investment strategy? Is it conservative, moderate, or aggressive? The investment strategy is aggressive. The investment strategy is moderate. The investment strategy is conservative. Given the existing composition of your investment portfolio, how would you characterize your risk tolerance? Are you risk averse, risk neutral, or risk seeking? You appear to be risk averse. You appear to be risk seeking. You appear to be risk neutral. Think about the government bonds in your portfolio. To what kind of risk are you most susceptible because of this investment? Foreign exchange risk Marketability risk Inflation risk Business failure risk Liquidity risk The real return on your government bonds is Think about the stock in your investment portfolio. To what type of risk (or risks) are you most susceptible? Only random, or unsystematic, risk Both market (systematic) and random (unsystematic) risks Only liquidity risk Pure risk Only market, or systematic, risk Do you perceive a deficiency of some type in your equity holdings, and if so, of what type? No, it is better to invest in one company that you know really well than in companies you don't know as well No, my current equity holdings are appropriately diversified Yes, my current equity holdings are inadequately diversified Yes, according to the concept of asset allocation, I have too much stock in my portfolio Consider the following table of recommended asset allocation percentages of cash/bonds/equity: Risk tolerance / Investment strategy Low risk / Conservative Moderate risk / Moderate High risk / Aggressive 0-5 years 35 / 40 / 25 20 / 40 / 40 10 / 30 / 60 6-10 years 11+ years 20 / 40 / 40 10/30 / 60 10 / 30 / 600 / 20/ 80 0/ 20 / 80 0/0/100 If you believe that the allocation of assets in your portfolio should be modified to meet your retirement needs, then it is recommended that your holding of: Check all that apply. Cash and cash equivalents be increased Bonds be increased Equities be decreased Cash and cash equivalents be decreased Bonds be decreased Equities be increased Financial experts recommend that you should review and rebalance your investment portfolio at least once every Which of the following statements is true regarding the dollar-cost averaging strategy? Check all that apply. For this strategy to be successful, you must be lucky and knowledgeable; discipline is irrelevant. An advantage of dollar-cost averaging is that it imposes-and requires-investor discipline. An advantage of dollar-cost averaging is that it can reduce the average cost of purchased shares over a long investment period. Using this strategy, you can purchase a larger number of shares in a rising market than in a declining market. Dollar-cost averaging is successful in a rising, fluctuating, or declining market. As a long-term investor, how should you respond to a bear market? Hold tight; do not sell, but do not continue investing. Continue with your investment plan; it is good to buy while the prices are low. Sell quickly to "stop the bleeding