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Passage Two
Questions 26 to 30 are based on the
following passage:
The term investment portfolio conjures up
visions of the truly rich-the Rockefellers, the WalMart Waltons, Bill Gates. But today,
everyone-from the Philadelphia firefighter, his parttime receptionist wife and their three
children, to the single Los Angeles lawyer starting out on his own-needs a
portfolio.\;
A portfolio is simply a collection of
financial assets. It may include real estate, rare stamps and coins, precious
metals and even artworks. But those are for people with expertise. What most of
us need to know about are stocks, bonds and cash (including such cash
equivalents as moneymarket
funds).\;
How do you decide what part of your
portfolio should go to each of the big three? Begin by understanding that
stocks pay higher returns but are more risky; bonds and cash pay lower returns
but are less risky.\;
Research by Ibbotson Associates, for
example, shows that largecompany
stocks, on average, have returned 11.2 percent annually since 1926. Over the
same period, by comparison, bonds have returned an annual average of 5.3
percent and cash, 3.8 percent.\;
But shortterm risk is another matter. In 1974, a oneyear $1000 investment in the stock market
would have declined to $735.\;
With bonds, there are two kinds of risk:
that the borrower won't pay you back and that the money you'll get won't be
worth very much. TheU.S.government stands behind treasury bonds, so the credit risk is almost nil. But
the inflation risk remains. Say you buy a $1000 bond maturing in ten years. If
inflation averages about seven percent over that time, then the $1000 you
receive at maturity can only buy $500 worth of today's goods.\;
With cash, the inflation risk is lower,
since over a long period you can keep rolling over your CDs every year (or more
often). If inflation rises, interest rates rise to compensate.\;
As a result, the single most imortant rule
in building a portfolio is this: If you don't need the money for a long time,
then put it into stocks. If you need it soon, put it into bonds and cash.
26.This passage is intended to give advice
on ____.
A) how to avoid inflation risks
B) what kinds of bonds to buy
C) how to get rich by investing in stock
market
D) how to become richer by spreading the
risk
27.The author mentions such millionaires as
the Rockefellers and Bill Gates to show that ____.
A) they are examples for us on our road to
wealth
B) a portfolio is essential to financial
success
C) they are really rich people
D) they started out on their own
28.Which of the following statements will
the author support?
A) Everybody can get rich with some
financial assets.
B) The credit risk for treasury bonds is
extremely high.
C) It's no use trying to know the
advantages of stocks, bonds and cash.
D) Everybody should realize the importance
of distribution of their financial assets.
29.The word "returns" in
paragraph three can be best replaced by "____."
A) returning journeys
B) profits
C) savings
D) investments
30.The author of the passage points out
that ____.
A) keeping cash is the only way to avoid
risks
B) the longer you own a stock, the more you
lost
C) the high rate of profit and high rate of
risk coexist in stocks
D) the best way to accumulate wealth is by investing in stocks
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