Portfolio Management MCQ - Portfolio Management Section 2

16 An investment policy statement that includes a return objective of "No greater than a 6% probability of a loss of more than $34,500 over any 12-month period" is best characterized as having a(n):

Absolute return objectives can also be stated in terms of the probability of specific portfolio results, percentage losses or dollar losses, rather than strict limits on portfolio results.

17 8 An investment policy statement that includes a risk objective of “Return should be within 4% of the S&P 500 index return” is best characterized as having a(n):

The risk objective is expressed relative to a benchmark.

18 Dean Jones is 43 years old and has a secure job with an annual salary of AUD 300,000. The income is sufficient to cover his and his family’s expenses. He owns the house his family lives in and has savings of AUD 1,000,000. Jones is reluctant to invest in the stock market because he believes that stock market returns are based on luck. Furthermore, the thought of losing money causes him to have sleepless nights. Based on this information which of the following statements is most accurate?

Give the high income and savings, his ability to take risk is high. However, his attitude towards the stock market and the possibility of losing money indicates that his willingness to take risk is low.

19 Emily Rose is willing to take risk when investing. She is young and has a secure, well-paying job. Her risk tolerance will most likely be characterized as:

Given that she is young and has a secure, well-paying job, her ability to take risk is high. We are told that she is also willing to take risk. Consequently, her risk tolerance will most likely be characterized as „high.‟

20 Which of the following factors is most likely to affect an investor’s willingness to take risk?

It is important to distinguish between the willingness to take risk and the ability to do so. An investor‟s willingness to take risk is based primarily on the investor‟s beliefs and attitudes towards the investment. The other two factors affect the person‟s ability to take the risk and not the willingness.