Question
1) You determine that the appropriate balance for your investment-risk tolerance is a 79-15-6 proportion (stocks, bonds, and cash). After the first year, your $38,000
1) You determine that the appropriate balance for your investment-risk tolerance is a 79-15-6 proportion (stocks, bonds, and cash). After the first year, your $38,000 investment has doubled in value to $76,000, with $60,800 in stocks, $10,800 in bonds, and $4,400 in cash. How should your assets be allocated to retain your risk proportions?
a) Sell $760 in stocks, buy $600 in bonds, and add $160 in cash
b) Sell $380 in stocks, buy $300 in bonds, and add $80 in cash
c) Buy $380 in stock, sell $300 in bonds, and reduce cash by $80
d) Buy $760 in stock, buy $600 in bonds, and reduce cash by $160
2) Right after college graduation, you open a targeted retirement account, allocating 82% of the funds to domestic and international stocks and 18% to corporate bonds. You plan to shift these allocations to 50% stock and 50% bonds upon retirement. You are now ready for retirement with $5,200,000 in your fund. How much money should you allocate to stocks and bonds?
a) $4,264,000 to stocks and $936,000 to bonds
b) $2,600,000 to stocks and $2,600,000 to bonds
c) $936,000 to stocks and $4,264,000 to bonds
d) You cannot answer this question without knowing the current inflation rate.
3) What is the impact on a checking account's purchasing power if it is earning 2.60% APY and inflation is 7.00% for the past year?
a) Interest outpaced inflation by 4.40%.
b) Inflation outpaced savings by 4.40%.
c) The impact cannot be determined without knowing the balance.
d) Savings outpaced inflation by 4.40%.
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