IFC - Investment Funds in Canada Constructing Investment Portfolios Questions and Answers

Question 1

A 25-year-old investor with a high risk tolerance and a 40-year time horizon for retirement is constructing their first portfolio.
Which of the following asset allocations would be MOST suitable for their primary long-term goal?

Accepted Answer

90% Equity, 10% Fixed Income

Answer

50% Equity, 50% Fixed Income

Answer

20% Equity, 80% Fixed Income

Answer

100% Cash and Cash Equivalents

Question 2

An investor's portfolio has a target asset mix of 60% equities and 40% bonds. Due to strong market performance, the equity portion has grown to represent 75% of the portfolio's value. Which of the following actions describes the process of rebalancing?

Accepted Answer

Selling a portion of the equity holdings and using the proceeds to buy bonds.

Answer

Holding the current allocation to see if equities will rise even further.

Answer

Adding new money only to the equity portion to continue its momentum.

Answer

Selling all bond holdings to invest more in the outperforming equity funds.

Question 3

Which of the following risks can be significantly mitigated through proper diversification of a portfolio across various asset classes, industries, and geographic regions?

Accepted Answer

Unsystematic risk

Answer

Systematic risk

Answer

Inflation risk

Answer

Interest rate risk

Question 4

Which of the following statements best describes strategic asset allocation?

Accepted Answer

It is the process of establishing a long-term, target asset mix based on a client's objectives and risk tolerance.

Answer

It involves frequent, short-term adjustments to capitalize on market trends.

Answer

It focuses exclusively on selecting the best-performing individual securities within a single asset class.

Answer

It is a passive strategy that involves investing only in market index funds and never rebalancing.

Question 5

What is the primary objective of adding assets with low or negative correlation to each other within an investment portfolio?

Accepted Answer

To reduce the portfolio's overall volatility.

Answer

To guarantee a positive return each year.

Answer

To maximize short-term trading profits.

Answer

To eliminate all possible investment risks.

Question 6

A retired couple, both aged 70, require their portfolio to generate consistent monthly cash flow to cover their living expenses. They are highly averse to volatility and wish to preserve their capital. Which primary investment objective best describes their needs?

Accepted Answer

Income and Capital Preservation

Answer

Aggressive Growth

Answer

Speculation

Answer

Growth

A 25-year-old investor with a high risk tolerance and a 40-year time horizon for retirement is constructing their first portfolio.Which of the following asset allocations would be MOST suitable for their primary long-term goal?

A 25-year-old investor with a high risk tolerance and a 40-year time horizon for retirement is constructing their first portfolio.
Which of the following asset allocations would be MOST suitable for their primary long-term goal?