FREE Investment (Risk Tolerance) Questions and Answers

Question 1

How would your best friend characterize you as a risk-taker in general?
A. A real Gambler
B. Willing to take risks after completing adequate research
C. Cautious
D. A real risk avoider

Accepted Answer

DCBA

Answer

This question assesses an individual's general risk tolerance by asking for a friend's characterization. The correct order, DCBA, arranges the options from the most risk-averse ('A real risk avoider') to the most risk-seeking ('A real Gambler'). This progression helps categorize an individual's comfort level with taking risks in various situations.

Question 2

On a TV game show, you can pick one of the options below. Which one do you prefer?
A. A 5% chance at winning $100,000
B. A 25% chance at winning $10,000
C. $1,000 in cash
D. A 50% chance at winning $5,000

Accepted Answer

CDBA

Answer

This question evaluates risk tolerance by presenting different scenarios with varying probabilities and potential payouts. The correct order, CDBA, reflects a typical progression from a preference for a guaranteed, smaller reward (C) to increasingly riskier options with higher potential payouts but lower probabilities (D, B, A). This sequence helps gauge an individual's comfort with uncertainty and their willingness to gamble for greater returns.

Question 3

You recently finished setting aside money for a "once-in-a-lifetime" trip. You lose your job three weeks before you're scheduled to depart. You would:
A. Cancel the vacation
B. Take a much more modest vacation
C. Go as scheduled, reasoning that you need the time to prepare for a job research
D. Extend your vacation, because this might be your last chance to go first-class

Accepted Answer

ABCD

Answer

This question assesses an individual's financial risk tolerance and decision-making under unexpected stress. The correct order, ABCD, represents a progression from the most cautious response ('Cancel the vacation' - A) to increasingly less cautious or more risk-taking responses (B, C, D). This sequence helps categorize an individual's comfort level with financial uncertainty and their willingness to proceed with plans despite significant changes in personal circumstances.

Question 4

What would you do if you were given $20,000 to invest on the spur of the moment?
A. Deposit it in a bank account, money market account, or an insured CD
B. Invest it in safe high-quality bonds or bond mutual funds
C. Invest it in stocks or stock mutual funds

Accepted Answer

ABC

Answer

Investing a sudden sum 'on the spur of the moment' implies a lack of prior research or a defined investment strategy. Placing the $20,000 in a low-risk, liquid, and insured option like a bank account, money market, or CD is a prudent initial step. This allows time to properly research and plan a long-term investment strategy without exposing the capital to immediate market volatility or making hasty decisions.

Question 5

How at ease are you with investing in equities or stock mutual funds in terms of experience?
A. Not at all comfortable
B. Somewhat comfortable
C. Very comfortable

Accepted Answer

BAC

Answer

This question aims to gauge an individual's self-assessed comfort and experience with stock market investments. 'Somewhat comfortable' typically indicates a moderate understanding and willingness to engage with equities, suggesting a balanced approach rather than extreme comfort (which might imply overconfidence) or complete discomfort (which might indicate high risk aversion).

Investment Practice Test

Investment Practice Test

FREE Investment (Risk Tolerance) Questions and Answers