#1
What is a mutual fund?
A type of investment vehicle
ExplanationInvestment pool that gathers money from many investors to purchase a diversified portfolio.
#2
What is the 'Net Asset Value' (NAV) of a mutual fund?
The total market value of all the assets minus the liabilities of the fund
ExplanationReflects the per-share value of the fund and is calculated by subtracting liabilities from assets.
#3
What is the 'expense ratio' of a mutual fund?
The ratio of the fund's expenses to its assets
ExplanationPercentage of a fund's assets used for administrative, management, advertising expenses, etc.
#4
What is a 'load' in the context of mutual funds?
A fee charged to investors when they buy or sell shares in the fund
ExplanationSales charge paid when purchasing or selling shares in some mutual funds.
#5
What is a 'hedge fund'?
A type of investment fund
ExplanationPrivately pooled investment vehicle, often pursuing complex strategies.
#6
What is 'diversification' in the context of investment portfolios?
The process of reducing risk by investing in a variety of assets
ExplanationSpreading investments across different assets to mitigate risk.
#7
What is 'rebalancing' in the context of investment portfolios?
The process of selling assets to maintain a desired asset allocation
ExplanationAdjusting portfolio holdings to maintain desired risk-return profile.
#8
What is 'modern portfolio theory'?
A theory that states that investors should diversify their portfolios
ExplanationEmphasizes diversification to optimize risk-return tradeoff.
#9
What is 'alpha' in the context of investment funds?
The ratio of the fund's return to its benchmark index
ExplanationIndicates the fund's outperformance or underperformance compared to its benchmark.
#10
What is 'beta' in the context of investment funds?
The ratio of the fund's return to its risk
ExplanationMeasures the fund's sensitivity to market movements relative to a benchmark.
#11
What is the 'Sharpe ratio'?
A measure of a fund's risk-adjusted performance
ExplanationAssesses the return of an investment compared to its risk.
#12
What is the 'Sortino ratio'?
A measure of a fund's risk-adjusted performance
ExplanationSimilar to Sharpe ratio but focuses on downside risk.
#13
What is 'Yield to Maturity' (YTM)?
The rate of return anticipated on a bond if it is held until maturity
ExplanationEstimates the annual return expected on a bond if held until maturity.
#14
What is the 'efficient market hypothesis'?
A theory that states that asset prices fully reflect all available information
ExplanationAsserts that it's impossible to consistently outperform the market due to efficiency.
#15
What is a 'factor model'?
A statistical model that explains the returns of a portfolio using one or more factors
ExplanationAnalyzes returns based on underlying factors such as market risk or company size.