- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 4. Basics of Portfolio Planning and Construction
- Subject 3. Investment Constraints
CFA Practice Question
A long investment time horizon is typically associated with ______.
B. investments with high liquidity
C. deferral of capital gains
A. low-risk investments
B. investments with high liquidity
C. deferral of capital gains
Correct Answer: C
A long holding period allows securities to appreciate without realization of capital gains. This also defers payment of tax liabilities.
User Contributed Comments 8
| User | Comment |
|---|---|
| jallado0 | why not A? |
| Shelton | HR (high risk) |
| yly14 | remember risk tolerance and time horizon are the two parameters for portfolio investing, one is preferably independent of the other. |
| bobert | If you have a longer time horizon you also have a longer time to reaccumulate funds in the event you have a loss, low-risk has lower returns due to the reduced risk and are better for shorter time horizons when an investor is not capable of going back to work for instance. |
| Khadria | B is a better choice than A |
| StanleyMo | with longer time you can tolerate with the higher risk, guess this is talking about share market. |
| tim2 | If you have a short time horizon, eg. you need the money next month to pay for a house you'd probably go for low risk such as leaving it in the bank. If you are leaving it 40 years you might go high risk eg. emerging markets etc |
| gulfa99 | long risk can also apply to sovereign or corporate bonds. Say if you have no liquidity need for 10 years, you can invest your funds in xxx bonds paying 10% semiannually. The price of the bonds is affected by interest rate movement, if Interest rates move higher then the price of long term bond will drop and this will result in a loss if you have a liquidity need. where as short term investments are based on your liquidity needs..say 1, 3 or 6 months t-bills |