Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Personal Financial Planning

Mr. Iyer, aged 35, earns a stable salary, has no dependants, has a long investment horizon and has repeatedly stated that he is comfortable with temporary falls in portfolio value. His adviser should say that his risk capacity is:

His risk capacity is high because of stable income, no dependants and a long horizon. However, risk tolerance, which is willingness to bear losses, is a separate attitudinal measure and must be assessed independently rather than assumed equal to capacity.

  1. AHigh, though his risk tolerance must still be assessed separatelyCorrect
  2. BLow, because he has no dependants
  3. CAlways equal to his risk tolerance
  4. DIrrelevant to asset allocation

Explanation

Risk capacity is the ability to bear loss, driven by income stability, horizon and obligations. Mr. Iyer has high capacity. Risk tolerance is the psychological willingness and is assessed separately, so the two need not be equal.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Personal Financial Planning shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Personal Financial PlanningFree diagnostic mock

More Introduction to Personal Financial Planning questions