Exam 18: Asset Allocation

An investor purchases a call option for $5 per share in a stock currently selling for $24 per share. The exercise price is $30 per share. On the day the option expires, the stock is selling for $29 per share. What will the investor do? What is the investor's total gain or loss?

If your portfolio currently consists of common stock in three companies, you could increase your diversification by all of the following, except

The stocks, bonds, and mutual funds that an investor owns comprise his/her ________.

In a portfolio, stocks and bonds are

________ increase risk while ________ decrease risk in a portfolio.

Which of the following is a true statement about diversification?

Selling options on stock you already own

Over time, you should change the composition of your investment portfolio in response to change in your

A portfolio can reduce risk when its

Asset allocation is the process of dividing money across financial assets that include all of the following, except

If you anticipate strong economic market conditions, you may want to

Investors who are 30 to 50 years old tend to focus their allocation on ________ because they can afford the risk.

To reduce your investment risk, you should select stocks whose returns exhibit a ________ positive correlation rather than a ________ positive correlation.

Individuals in an early stage of their careers can take ________ investment risk than those in the retirement stage.

List two considerations that affect your asset allocation decision.

During the financial crisis in 2008-2009, General Electric's share price dropped significantly. This was because of the

When investing outside the United States, stocks are typically ________ U.S.-based stocks.

One way to reduce your diversification costs is to invest in various mutual funds.

An investor purchases 100 shares of stock for $20 per share. The stock has now risen in price to $44 per share. To cover potential losses, the investor purchases a put option for a premium of $300 with an exercise price of $42 per share. The stock falls to $28 per share, and the investor exercises the option and sells the shares at $42 per share. Ignoring brokerage commissions and taxes, what would be the investor's return from the stock?

A good asset allocation plan changes over time. How does it change from mid-life to retirement?