Terry Hamilton Has Just Received $30,000 from an Uncle Who

question 109

Multiple Choice

Terry Hamilton has just received $30,000 from an uncle who died and is trying to decide how to invest it.She has done some research and has decided that about 30% of the money should go into large cap stocks,20% into medium cap stocks,15% into small cap stocks,10% into bonds,10% into foreign stock,and 15% into cash.She thinks that even if one area does not do that well,the rest will so that her overall return will be pretty good.What aspect of investing is Terry most concerned about?

• A)Income
• B)Return
• C)Diversification
• D)Liquidity
• E)Investment growth

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Definitions:

Research and Development

The investigative activities a business conducts to improve existing products and procedures or to lead to the development of new products and procedures.

Expected-Rate-of-Return Curve

A graphical representation that illustrates the relationship between the expected return of an investment and its associated risk.

Interest-Rate Cost-of-Funds Curve

A curve that illustrates the relationship between the interest rates on loans or deposits and the total amount of funds borrowed or lent.

MB = MC Decision Framework

A decision-making process where an action is taken if the marginal benefit (MB) is equal to or greater than the marginal cost (MC).