Financial Concepts and Terminology Quiz

Explore essential financial concepts with our quiz! Learn about time value of money, stocks vs. bonds, diversification, and more.

Practice Learn Test

What is the time value of money?

The value of money increases over time

The idea that money available today is worth more than the same amount in the future

The concept that money should be saved for future use

The value of money decreases over time

What is a dividend?

A payment made by a company to its shareholders, usually as a share of the company's profits

A payment made by a shareholder to a company

A payment made by a company to its creditors

A payment made by a company to its employees

What is the difference between stocks and bonds?

Stocks represent ownership in a company, while bonds are loans to a company or government

Stocks are issued by governments, while bonds are issued by companies

Stocks have fixed returns, while bonds have variable returns

Stocks are less risky than bonds

What is diversification?

Investing in a single asset

Investing in multiple assets to reduce risk

Investing only in stocks

Investing only in bonds

What is the difference between simple interest and compound interest?

Simple interest is calculated on the initial principal only, while compound interest is calculated on the initial principal and the accumulated interest

Simple interest is calculated annually, while compound interest is calculated monthly

Simple interest is calculated on the initial principal and the accumulated interest, while compound interest is calculated on the initial principal only

There is no difference between simple interest and compound interest

What is the difference between a stock's market value and its book value?

Market value is the value of a stock based on its current market price, while book value is the value of a stock based on its historical cost

Market value is the value of a stock based on its historical cost, while book value is the value of a stock based on its current market price

Market value is always higher than book value

There is no difference between market value and book value

What is the purpose of a balance sheet?

To show a company's revenues and expenses over a period of time

To show a company's financial position at a specific point in time

To show a company's cash flows over a period of time

To show a company's profitability over a period of time

What is the difference between a market order and a limit order?

A market order is an order to buy or sell a stock at the current market price, while a limit order is an order to buy or sell a stock at a specific price

A market order is an order to buy or sell a stock at a specific price, while a limit order is an order to buy or sell a stock at the current market price

A market order is always executed immediately, while a limit order may not be executed immediately

There is no difference between a market order and a limit order

What is the concept of present value?

The current value of future cash flows discounted at a specific rate

The future value of current cash flows

The current value of future cash flows without discounting

The current value of past cash flows

#10

What is the concept of leverage in finance?

The use of borrowed funds to increase the potential return of an investment

The use of borrowed funds to decrease the potential return of an investment

The use of personal funds to increase the potential return of an investment

The use of personal funds to decrease the potential return of an investment

#11

What is the difference between a stock's dividend yield and its dividend payout ratio?

Dividend yield measures the percentage return on a stock based on its current price, while dividend payout ratio measures the percentage of earnings paid out as dividends

Dividend yield measures the percentage of earnings paid out as dividends, while dividend payout ratio measures the percentage return on a stock based on its current price

Dividend yield is always higher than dividend payout ratio

There is no difference between dividend yield and dividend payout ratio

#12

What is the efficient market hypothesis?

The theory that markets always react efficiently to new information

The theory that markets are always inefficient

The theory that markets are only efficient in the long run

The theory that markets are only efficient in the short run

#13

What is the concept of dollar-cost averaging?

The practice of buying a fixed dollar amount of a particular investment regularly, regardless of the share price

The practice of buying a fixed number of shares of a particular investment regularly, regardless of the share price

The practice of selling a fixed dollar amount of a particular investment regularly, regardless of the share price

The practice of selling a fixed number of shares of a particular investment regularly, regardless of the share price

#14

What is the concept of arbitrage?

The practice of buying and selling securities to profit from price differences in different markets

The practice of buying securities with the expectation that their price will rise

The practice of selling securities with the expectation that their price will fall

The practice of holding securities for the long term