Comparative Analysis of Financial Investments Quiz

Savings accounts are not considered financial investments as they focus on saving money rather than generating returns through investments.

Money market funds are highly liquid investments that provide stability and easy access to cash equivalents.

While factors like interest rates and credit quality impact bond prices, dividend yield is irrelevant as bonds do not pay dividends.

Mutual funds offer the advantage of professional fund management, where experienced portfolio managers make investment decisions on behalf of investors.

Compound interest refers to the process of earning interest on both the initial investment amount and the previously earned interest, leading to exponential growth.

Stock exchanges provide a platform for the trading of securities, enabling buyers and sellers to exchange financial instruments.

Stocks signify ownership in a company, whereas bonds represent a form of debt where investors lend money to an entity.

Diversification involves spreading investments across different assets to minimize risk through exposure to various market factors.

Growth stocks are known for their potential to experience substantial capital appreciation due to strong earnings and revenue growth.

Fundamental analysis involves assessing a company's financial health and market position to determine its true, or intrinsic, value.

The Price/Earnings (P/E) ratio is a valuation metric used to assess a stock's relative value by comparing its share price to its earnings per share.

Defensive investments, like consumer staples stocks, tend to be more resilient during economic downturns due to the consistent demand for essential goods and services.

The Sharpe ratio assesses the risk-adjusted performance of an investment by evaluating its return in relation to its volatility.

Alpha measures an investment's performance relative to the market, indicating its ability to outperform or underperform.

Time decay is a risk in options trading, where the value of options contracts diminishes over time, affecting their profitability.

EMH posits that financial markets rapidly incorporate all available information, making it challenging for investors to consistently achieve above-average returns.