#1
What is the primary purpose of diversification in investment?
To reduce risk by spreading investments across different assets
ExplanationDiversification minimizes risk by allocating investments across various assets.
#2
What is the main purpose of a 529 plan in financial planning?
Education savings
ExplanationA 529 plan is designed for saving for education expenses.
#3
What is the purpose of the Sharpe ratio in investment analysis?
Assessing risk-adjusted returns
ExplanationThe Sharpe ratio evaluates investment returns adjusted for risk.
#4
What is the key benefit of holding a diversified portfolio?
Lower risk through asset variety
ExplanationDiversified portfolios offer reduced risk by spreading investments.
#5
What is the role of compounding in investment growth?
Accelerating the growth of investment returns over time
ExplanationCompounding enhances investment returns by reinvesting earnings.
#6
What does the term 'ROI' stand for in finance?
Return on Investment
ExplanationROI represents the measure of investment profitability.
#7
Which of the following is a type of retirement account that offers tax advantages?
401(k)
Explanation401(k) is a tax-advantaged retirement savings account.
#8
Which of the following is an example of a liquid asset?
Stocks
ExplanationLiquid assets, like stocks, can be easily converted to cash.
#9
What does the term '401(k)' represent in the context of retirement savings?
Employer-sponsored retirement plan
ExplanationA 401(k) is a retirement plan sponsored by employers.
#10
Which investment strategy involves buying and holding a diversified portfolio for the long term?
Passive investing
ExplanationPassive investing involves long-term holding of a diversified portfolio.
#11
What is the concept of 'dollar-cost averaging' in investment?
Investing a fixed amount at regular intervals
ExplanationDollar-cost averaging involves consistent investment at regular intervals.
#12
What is the key characteristic of a fixed-income investment?
Guaranteed regular income payments
ExplanationFixed-income investments provide a steady stream of income payments.
#13
What does the term 'alpha' refer to in the context of investment performance?
Excess return compared to a benchmark
ExplanationAlpha measures the excess return of an investment compared to a benchmark.
#14
In investment, what does the term 'liquidity' refer to?
Ease of converting an asset into cash
ExplanationLiquidity is the ease of converting an asset into cash.
#15
What is the primary objective of a hedge fund?
Risk reduction
ExplanationHedge funds aim to reduce risk in investment portfolios.
#16
Which economic indicator is often considered a leading indicator for the overall health of the economy?
Stock market performance
ExplanationStock market performance is often a leading indicator of economic health.
#17
What is the primary function of a financial advisor in the context of investment planning?
Helping clients achieve financial goals
ExplanationFinancial advisors assist in achieving clients' financial objectives.