Risk vs. Reward

Q U E S T I O N   1 :
What is one of the best ways for a stock investor to minimize market risk?
	a)	Increase the time she holds on to her portfolio.
	b)	Buy only large-cap stocks.
	c)	Attempt to time the market, getting in at the bottom and out at the top.
	d)	Hire a full-service broker.
Q U E S T I O N   2 :
What impact does inflation have on investment returns?
	a)	None. Inflation is a macroeconomic variable with little impact on individual investors.
	b)	Inflation erodes the real value of investment returns by diminishing the purchasing power of the dollar.
	c)	Returns are multiplied by the current rate of inflation.
	d)	Inflation plus returns equals real value.
Q U E S T I O N   3 :
If an investor who uses dollar-cost averaging buys five shares when a fund's price is $20 per share, how many will he buy when the price is $10 per share?
	a)	2.5
	b)	1
	c)	4
	d)	10
Q U E S T I O N   4 :
After the market crashed in 1987, how would a savvy investor have reacted?
	a)	By selling stocks that declined by more than 50%.
	b)	By weeping uncontrollably.
	c)	By holding tight and buying more stock at depressed prices.
	d)	By moving what's left into bonds for at least a year.
Q U E S T I O N   5 :
What's the best way to avoid getting stung by a stock that falls off the table?
	a)	Watch all of your investments like a hawk and sell at the first whiff of a decline.
	b)	Stay away from hot stocks completely, because once they're hot, they're bound to cool quickly.
	c)	Make sure your portfolio has some diversification so no one stock can hurt you very badly.
	d)	Borrow as much money as possible from friends to buy stock so you're not using your cash.
Q U E S T I O N   6 :
Generally speaking, as investors get older, how should they alter their stock-to-bond ratio in their portfolios?
	a)	Increase the stock weighting.
	b)	Decrease the stock weighting.
	c)	Keep the ratio the same.
	d)	No one over 30 should own stocks.
Q U E S T I O N   7 :
Suppose an investor puts $1,000 into a money-market fund that returns 6%. Inflation at the time is 5%. At the end of one year, how much buying power does the initial $1000 have?
	a)	$1,010
	b)	$1,060
	c)	$1,110
	d)	$600
Q U E S T I O N   8 :
Which of the following statements correctly distinguishes the inflation-adjusted performances of large-cap stocks vs. long-term bonds over 15-year periods?
	a)	Stocks outperform bonds in their respective best 15-year stretches and underperform during their worst stretches.
	b)	Stocks outperform in the best stretches, but bonds underperform during the worst stretches.
	c)	Bonds outperform in the best stretches, but stocks underperform during the worst stretches.
	d)	Bonds outperform in the best stretches and underperform during the worst stretches.
Q U E S T I O N   9 :
What is asset allocation?
	a)	Dividing investment money into a variety of instruments and markets.
	b)	Adding to a portfolio in monthly installments.
	c)	Maintaining a 50/50 split between stocks and bonds in a portfolio.
	d)	The way mutual funds divvy up shares to preferred customers.
Q U E S T I O N   10 :
In order to simultaneously minimize risk and buy more stocks at cheap prices, when should investors put money into the market?
	a)	Between Jan. 1 and Jan. 31 of each year.
	b)	In steady increments throughout the year.
	c)	Only when the market is between a peak and a trough.
	d)	Only in periods of recession.