#1
Which of the following is a basic principle of diversification in investment?
Investing in a variety of assets
ExplanationDiversification involves spreading investments across different types of assets to reduce risk.
#2
What does ROI stand for in financial terms?
Return on Investment
ExplanationROI measures the gain or loss generated on an investment relative to the amount invested.
#3
What is the purpose of a 401(k) retirement account?
To save for retirement
Explanation401(k) accounts are designed to help individuals save for retirement through tax-advantaged contributions.
#4
What is the significance of the Federal Reserve in the U.S. economy?
Regulating banks and monetary policy
ExplanationThe Federal Reserve oversees the financial system, regulates banks, and implements monetary policies to promote economic stability.
#5
What is the purpose of a balance sheet in financial statements?
To provide an overview of assets, liabilities, and equity
ExplanationBalance sheets summarize a company's financial position by detailing its assets, liabilities, and equity.
#6
What is the 'Rule of 72' in the context of investing?
A formula to estimate the time for an investment to double at a fixed annual rate of return
ExplanationThe Rule of 72 helps estimate the time required for an investment to double by dividing 72 by the annual rate of return.
#7
What is the role of a financial advisor in personal finance?
To provide investment advice and financial planning
ExplanationFinancial advisors offer guidance on investment decisions and assist with overall financial planning.
#8
What does the term 'asset allocation' mean in investment strategy?
Distributing investments across different asset classes
ExplanationAsset allocation involves spreading investments among various asset classes to achieve a balanced and diversified portfolio.
#9
What is the concept of 'bull market' in investing?
A market with increasing stock prices
ExplanationA bull market is characterized by rising stock prices and optimistic investor sentiment.
#10
What is the difference between stocks and bonds?
Stocks represent ownership in a company, while bonds represent debt
ExplanationStocks signify ownership in a company, whereas bonds are debt securities representing loans to an entity.
#11
What is the concept of 'dollar-cost averaging' in investing?
Investing a fixed amount of money at regular intervals, regardless of market conditions
ExplanationDollar-cost averaging involves consistently investing a fixed amount over time, reducing the impact of market volatility.
#12
In the context of investment, what does the term 'liquidity' refer to?
The ease of buying or selling an asset without causing a significant price change
ExplanationLiquidity reflects how easily an asset can be bought or sold without affecting its price.
#13
What is the purpose of a stock dividend?
To issue additional shares to existing shareholders
ExplanationStock dividends involve a company issuing additional shares to its current shareholders.
#14
What is the concept of 'time value of money' in finance?
The impact of interest rates on investment returns
ExplanationTime value of money recognizes the influence of interest rates on the present and future value of money.