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 Wal-Mart Waltons, Bill Gates. But today, everyone-from the Philadelphia firefighter, his part-time 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 money-market 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 large company 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 short-term risk is another matter. In 1974, a one-year $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. The U.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