#1
Which of the following is a low-risk investment option?
Government bonds
ExplanationGovernment bonds are considered low-risk due to the backing of the government.
#2
What is the purpose of diversification in investment?
To minimize risk by spreading investments across various assets
ExplanationDiversification reduces risk by spreading investments across different assets.
#3
Which of the following investment accounts offers tax advantages for retirement savings?
401(k)
ExplanationA 401(k) provides tax advantages for retirement savings, often with employer contributions.
#4
What is the primary goal of an emergency fund?
To cover unexpected expenses
ExplanationAn emergency fund is designed to cover unforeseen expenses and financial emergencies.
#5
What is the purpose of an investment horizon?
To determine the amount of time an investor plans to hold an investment
ExplanationAn investment horizon specifies how long an investor intends to hold a particular investment.
#6
Which of the following is considered a passive investment strategy?
Index investing
ExplanationIndex investing involves tracking a market index and is considered a passive investment strategy.
#7
What is the concept of 'compounding' in relation to savings?
Earning interest on both the initial principal and the accumulated interest
ExplanationCompounding involves earning interest on both the initial amount and the interest already earned.
#8
What is the term for the ratio of a company's debt to its equity?
Debt-to-equity ratio
ExplanationThe debt-to-equity ratio measures the proportion of a company's financing from debt compared to equity.
#9
What is the term for the process of gradually converting an investment portfolio to lower-risk assets as an investor approaches retirement?
Asset rebalancing
ExplanationAsset rebalancing involves adjusting a portfolio's risk by shifting investments towards lower-risk assets.
#10
What does the term 'PE ratio' commonly refer to in finance?
Price-to-earnings ratio
ExplanationThe PE ratio (Price-to-earnings) is a measure of a stock's valuation based on its earnings.
#11
What does the term 'liquidity' refer to in finance?
Ability to convert an asset into cash quickly without significant loss of value
ExplanationLiquidity measures the ease of converting an asset into cash without substantial loss.
#12
What is the primary purpose of a stop-loss order?
To limit losses on a stock position
ExplanationA stop-loss order is used to restrict losses by automatically selling a stock if its price falls to a specified level.
#13
What does the term 'ROE' stand for in finance?
Return on Equity
ExplanationROE stands for Return on Equity, indicating the profitability of shareholder equity.
#14
What is the concept of 'dollar-cost averaging'?
Investing a fixed amount of money at regular intervals regardless of market conditions
ExplanationDollar-cost averaging involves investing a fixed amount regularly, reducing the impact of market fluctuations.
#15
What is the concept of 'arbitrage' in finance?
Buying and selling securities simultaneously to profit from price discrepancies
ExplanationArbitrage involves exploiting price differences by buying and selling securities simultaneously for profit.
#16
Which financial statement provides information about a company's assets, liabilities, and equity?
Balance sheet
ExplanationThe balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.
#17
What is the concept of 'modern portfolio theory'?
A framework for maximizing expected returns while minimizing risk through diversification
ExplanationModern portfolio theory aims to maximize returns and minimize risk by diversifying investments across different asset classes.