CFA Practice Question

There are 221 practice questions for this study session.

CFA Practice Question

A long investment time horizon is typically associated with ______.

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
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