#1
Which of the following is a low-risk investment?
Government Bonds
ExplanationGovernment bonds are generally considered low-risk due to the backing of a government.
#2
Which of the following is a characteristic of a growth stock?
Tends to reinvest earnings for future growth
ExplanationGrowth stocks typically reinvest earnings for future expansion, aiming for capital appreciation.
#3
What is the primary purpose of a 401(k) retirement account?
To facilitate tax-advantaged retirement savings
Explanation401(k) accounts are designed for tax-advantaged retirement savings.
#4
What does the term 'Diversification' refer to in the context of investing?
Spreading investments across different assets
ExplanationDiversification involves spreading investments to reduce risk by investing in different assets.
#5
What is the Sharpe ratio used for in finance?
Measuring a portfolio's risk-adjusted return
ExplanationThe Sharpe ratio assesses a portfolio's return adjusted for its risk.
#6
What is the primary purpose of an ETF (Exchange-Traded Fund)?
To pool money from multiple investors and invest in a diversified portfolio
ExplanationETFs pool funds from investors to invest in a diversified portfolio of assets.
#7
In the context of bonds, what does the term 'Yield to Maturity' represent?
The total return anticipated on a bond if held until it matures
ExplanationYield to Maturity reflects the total expected return on a bond if held until it matures.
#8
What is the role of a custodian in the context of investment management?
Holding and safeguarding financial assets on behalf of clients
ExplanationCustodians hold and safeguard financial assets for clients, ensuring security and compliance.
#9
What is the concept of 'Beta' in the context of stocks?
The measure of a stock's sensitivity to market movements
ExplanationBeta gauges how a stock's price moves in relation to market fluctuations.
#10
Which of the following risk management strategies involves setting a predetermined price to sell an asset?
Stop-Loss
ExplanationA Stop-Loss is a risk management strategy involving a preset sell price to limit losses.
#11
What does the term 'Alpha' measure in the context of investment performance?
The risk-adjusted return of an investment
ExplanationAlpha measures an investment's risk-adjusted return, indicating performance relative to a benchmark.
#12
What is the purpose of using the Modern Portfolio Theory (MPT) in investment?
To find the optimal portfolio that balances risk and return
ExplanationMPT helps identify portfolios that optimize the balance between risk and return.
#13
In the context of options trading, what is a 'Put Option'?
A contract that gives the holder the right to sell an underlying asset at a specified price
ExplanationA Put Option grants the holder the right to sell an asset at a predetermined price in options trading.