Which of the following statements is true? 1. The investment portfolio of younge

Question

Which of the following statements is true?

1. The investment portfolio of younger investors should be heavily weighted toward conservative assets such as government bonds and blue chip stocks.

2. Bond prices and interest rates fluctuate directly.

3. The relationship between risk and potential reward is inverse.

4. During an economic contraction, bond prices are likely to rise.

Which of the following statements is false?

The price-earnings ratio of a particular stock is not indicative of its future

Preferred stocks pay a higher potential reward than common stocks.

The benefit of maxing out your tax-sheltered retirement plans such as an IRA or 401(k) is:

Explanation / Answer

1) 4 is correct.

During economic contraction, interest rates are very low in order to incentivize demand. Lower interest rates means higher bond prices.

2) 4 is correct.

Preferred stocks are are less risky than common stocks and hence, they pay lower potential reward than common stock. Hence, the last statement is false.

3) 1 is correct.

Contribution to traditional IRA or 401(k) are tax-deductible. Hence, it helps you in saving taxes today, which means it helps in starting with a larger principal amount due to the tax benefit associated with it.

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