#1
What is the time value of money?
The idea that money available today is worth more than the same amount in the future
ExplanationMoney's present worth exceeds its future value due to factors like inflation and opportunity cost.
#2
What is a dividend?
A payment made by a company to its shareholders, usually as a share of the company's profits
ExplanationA distribution of profits to shareholders, typically in the form of cash or additional shares.
#3
What is the difference between stocks and bonds?
Stocks represent ownership in a company, while bonds are loans to a company or government
ExplanationStocks confer ownership, while bonds are debt instruments providing loans to entities.
#4
What is diversification?
Investing in multiple assets to reduce risk
ExplanationSpreading investments across diverse assets to minimize the impact of a poor-performing asset on the overall portfolio.
#5
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
ExplanationSimple interest is linear, while compound interest compounds on both the initial amount and accrued interest.
#6
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
ExplanationMarket value reflects the current market price, while book value is based on the historical cost of the asset.
#7
What is the purpose of a balance sheet?
To show a company's financial position at a specific point in time
ExplanationA snapshot of a company's financial health, detailing assets, liabilities, and equity at a specific moment.
#8
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
ExplanationMarket orders execute immediately at the current market price, while limit orders specify a desired price for execution.
#9
What is the concept of present value?
The current value of future cash flows discounted at a specific rate
ExplanationDetermining the current worth of future cash flows by discounting them at a specified rate to account for the time value of money.
#10
What is the concept of leverage in finance?
The use of borrowed funds to increase the potential return of an investment
ExplanationAmplifying investment returns by utilizing borrowed capital, which also magnifies potential losses.
#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
ExplanationDividend yield gauges the return on investment, while payout ratio indicates the portion of earnings distributed as dividends.
#12
What is the efficient market hypothesis?
The theory that markets always react efficiently to new information
ExplanationA theory asserting that financial markets rapidly and accurately incorporate new information into stock prices, making it difficult to consistently achieve above-average returns.
#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
ExplanationSystematically investing a fixed amount at regular intervals, reducing the impact of market volatility on the overall investment.
#14
What is the concept of arbitrage?
The practice of buying and selling securities to profit from price differences in different markets
ExplanationExploiting price discrepancies in different markets by buying low and selling high to gain risk-free profits.