#1
Which of the following is considered a low-risk investment?
Government bonds
ExplanationGovernment bonds are backed by the government, considered safe due to low default risk.
#2
What does the term 'ROI' stand for in investment?
Return on Investment
ExplanationROI measures the profitability of an investment relative to its cost.
#3
Which of the following is a characteristic of a bear market?
Declining stock prices
ExplanationBear markets are characterized by falling stock prices over an extended period.
#4
What is the primary purpose of a 529 plan?
To save for education expenses
Explanation529 plans are designed to save for education expenses with tax advantages.
#5
What does the term 'market capitalization' refer to?
The total value of shares outstanding for a company
ExplanationMarket capitalization is the total value of a company's outstanding shares, representing its size in the market.
#6
In finance, what does the acronym 'IRA' stand for?
Individual Retirement Account
ExplanationIRAs are tax-advantaged retirement accounts individuals can use to save for retirement.
#7
What is the purpose of asset allocation in financial planning?
To reduce risk through diversification
ExplanationAsset allocation spreads investments across different categories to minimize risk.
#8
What is the 'Rule of 72' used for in finance?
To estimate the doubling time for an investment
ExplanationRule of 72 estimates how long it takes for an investment to double at a given interest rate.
#9
What is the concept of 'dollar-cost averaging' in investing?
Investing a fixed amount of money at regular intervals
ExplanationDollar-cost averaging involves investing fixed amounts at consistent intervals to reduce the impact of market volatility.
#10
What does the term 'liquidity' refer to in finance?
The ease of converting an asset into cash without affecting its market price
ExplanationLiquidity describes the ability to convert assets into cash quickly without significant impact on their value.
#11
What does the term 'diversification' mean in investment?
Spreading investments across different asset classes
ExplanationDiversification involves allocating investments across various asset classes to minimize risk.
#12
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 represent debt issued by governments or corporations.
#13
Which of the following investment accounts offers tax advantages in the United States?
401(k)
Explanation401(k) accounts provide tax benefits for retirement savings.
#14
Which of the following investment vehicles is typically associated with the highest level of risk?
Stocks
ExplanationStocks are considered high-risk investments due to market volatility.
#15
What is the significance of the 'Sharpe ratio' in finance?
It measures the risk-adjusted return of an investment
ExplanationThe Sharpe ratio evaluates an investment's return relative to its risk, helping investors assess risk-adjusted performance.
#16
What does the term 'alpha' represent in finance?
A measure of investment performance relative to a benchmark index
ExplanationAlpha measures an investment's performance relative to a benchmark index, indicating its excess return or underperformance.