Investment Jobs Investment Strategy Test 3 — Questions and Answers
Question 1: An investor with a 30-year horizon and high risk tolerance should generally weight toward:
- Short-term Treasury bills
- Equities for long-term growth (Correct answer)
- Money market funds only
- Certificates of deposit
Correct answer: Equities for long-term growth
Long horizons and high risk tolerance favor equities, which offer greater growth potential over time.
Question 2: What is the main risk of a concentrated portfolio?
- Excessive diversification
- Outsized losses if one holding underperforms (Correct answer)
- Guaranteed lower returns
- No exposure to the market
Correct answer: Outsized losses if one holding underperforms
Concentration ties results to a few holdings, magnifying losses if they decline.
Question 3: A growth investing strategy emphasizes companies with:
- Stagnant revenues and high dividends
- Above-average earnings growth potential (Correct answer)
- Heavy debt and no expansion
- Only mature utility profiles
Correct answer: Above-average earnings growth potential
Growth investing targets firms expected to grow earnings faster than the market.
Question 4: Asset allocation refers to:
- Choosing individual stock tickers only
- Dividing investments among asset classes like stocks, bonds, and cash (Correct answer)
- Timing daily market moves
- Selecting a brokerage firm
Correct answer: Dividing investments among asset classes like stocks, bonds, and cash
Asset allocation is the mix of asset classes chosen to balance risk and return.
Question 5: Which metric measures a stock's volatility relative to the overall market?
- Alpha
- Beta (Correct answer)
- P/E ratio
- Dividend yield
Correct answer: Beta
Beta gauges how much a security moves relative to the broader market.
Question 6: A laddered bond strategy is designed to:
- Concentrate all bonds at one maturity
- Stagger maturities to manage interest rate and reinvestment risk (Correct answer)
- Avoid all fixed income
- Maximize leverage
Correct answer: Stagger maturities to manage interest rate and reinvestment risk
Bond laddering spreads maturities to reduce reinvestment and rate timing risk.
Question 7: Tax-loss harvesting is used to:
- Increase taxable gains intentionally
- Offset capital gains by realizing losses (Correct answer)
- Avoid filing taxes
- Boost dividend payments
Correct answer: Offset capital gains by realizing losses
Selling losing positions can offset realized gains and reduce tax liability.
Investment Jobs Investment Strategy Test 3
An investor with a 30-year horizon and high risk tolerance should generally weight toward: