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Question 1 of 10
1. Question
Which of the following is(are) another resource that investment advisors and consultants may use to better understand why investors think, feel, and behave the way that they do?
I. The field of behavioral economics
II. The field of behavioral finance
III. The field of behavioral preferance
IV. The field of behavioral investingCorrect
The field of behavioral economics/finance is another resource that investment advisors and consultants may use to better understand why investors think, feel, and behave the way that they do.
Incorrect
The field of behavioral economics/finance is another resource that investment advisors and consultants may use to better understand why investors think, feel, and behave the way that they do.
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Question 2 of 10
2. Question
To effectively manage risk, investment professionals should understand the various qualities that individuals demonstrate such as?
I. Individual biases
II. Individual mental heuristics
III. Individual mental ideas
IV. Individual perceptionsCorrect
To effectively manage risk, investment professionals should understand the various biases and mental heuristics individuals demonstrate and should learn to manage these behaviors in both themselves and their clients.
Incorrect
To effectively manage risk, investment professionals should understand the various biases and mental heuristics individuals demonstrate and should learn to manage these behaviors in both themselves and their clients.
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Question 3 of 10
3. Question
An investment advisor or consultant may be skilled in which of the following?
I. Recommending profitable investments
II. Managing portfolios effectively
III. Consulting institutional clients prudently regarding the right asset allocation
IV. Understand a client’s understanding of and tolerance for riskCorrect
An investment advisor or consultant may be skilled in recommending profitable investments, managing portfolios effectively, or consulting institutional clients prudently regarding the right asset allocation; but these activities may not be appropriate or even defendable if the advisor or consultant does not fully and accurately understand a client’s understanding of and tolerance for risk.
Incorrect
An investment advisor or consultant may be skilled in recommending profitable investments, managing portfolios effectively, or consulting institutional clients prudently regarding the right asset allocation; but these activities may not be appropriate or even defendable if the advisor or consultant does not fully and accurately understand a client’s understanding of and tolerance for risk.
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Question 4 of 10
4. Question
The most commonly accepted definition of risk is one that involves a well-known statistical measure known as the?
I. Wild card
II. Outcome
III. Variance
IV. DenominatorCorrect
The most commonly accepted definition of risk is one that involves a well-known statistical measure known as the variance.
Incorrect
The most commonly accepted definition of risk is one that involves a well-known statistical measure known as the variance.
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Question 5 of 10
5. Question
Investors quantify risk in terms of the variance of an asset’s expected return. The variance of a random variable is a measure of which of the following?
I. The common denominator of an unexpected variable
II. The hazard, peril, exposure to loss or injury
III. The dispersion of the possible outcomes around the expected value.
IV. The statistical outcome of both capital gain and lossCorrect
Investors quantify risk in terms of the variance of an asset’s expected return. The variance of a random variable is a measure of the dispersion of the possible outcomes around the expected value.
Incorrect
Investors quantify risk in terms of the variance of an asset’s expected return. The variance of a random variable is a measure of the dispersion of the possible outcomes around the expected value.
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Question 6 of 10
6. Question
Investors, however, do not view possible returns above the expected return as an unfavorable outcome. In fact, such outcomes are favorable. Because of this, some researchers have argued that measures of risk should not consider which of the following?
I. The possible loss above the expected loss.
II. The possible loss below the expected loss.
III. The possible returns below the expected return.
IV. The possible returns above the expected return.Correct
Investors, however, do not view possible returns above the expected return as an unfavorable outcome. In fact, such outcomes are favorable. Because of this, some researchers have argued that measures of risk should not consider the possible returns above the expected return.
Incorrect
Investors, however, do not view possible returns above the expected return as an unfavorable outcome. In fact, such outcomes are favorable. Because of this, some researchers have argued that measures of risk should not consider the possible returns above the expected return.
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Question 7 of 10
7. Question
Which of the following measures of downside risk are currently being used by practitioners?
I. The risk of loss
II. The value at risk
III. The risk factor
IV. The 50/50 principalCorrect
Various measures of downside risk, such as risk of loss and value at risk, are currently being used by practitioners.
Incorrect
Various measures of downside risk, such as risk of loss and value at risk, are currently being used by practitioners.
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Question 8 of 10
8. Question
Which of the following is(are) way(s) of reducing the risk associated with holding an individual security?
I. Expenditure
II. Diversifying
III. Relocating
IV. HedgingCorrect
One way of reducing the risk associated with holding an individual security is by diversifying.
Incorrect
One way of reducing the risk associated with holding an individual security is by diversifying.
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Question 9 of 10
9. Question
Some investors would say that a portfolio can be diversified by including which of the following?
I. Real estate
II. Bonds
III. Stocks
IV. Assets across all asset classesCorrect
Some investors would say that a portfolio can be diversified by including assets across all asset classes.
Incorrect
Some investors would say that a portfolio can be diversified by including assets across all asset classes.
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Question 10 of 10
10. Question
Some investors who focus only on one asset class such as common stock argue that such portfolios should also be diversified. What do they mean by this?
I. That an investor should not place all funds in the stock of one company, but rather should include stocks of many companies.
II. That an investor should place most funds in the stock of one company and some stocks of many companies.
III. That an investor should place all funds in the stock of one company.
IV. That an investor should not place all funds in the stock of one company, but rather should include stocks of at least two to three companies.Correct
Some investors who focus only on one asset class such as common stock argue that such portfolios should also be diversified. By this they mean that an investor should not place all funds in the stock of one company, but rather should include stocks of many companies.
Incorrect
Some investors who focus only on one asset class such as common stock argue that such portfolios should also be diversified. By this they mean that an investor should not place all funds in the stock of one company, but rather should include stocks of many companies.