#1
Which of the following is a key component of an investment portfolio?
Risk-free asset
ExplanationA low-risk asset with guaranteed returns, providing stability to a portfolio.
#2
Which of the following is a characteristic of a growth stock?
Potential for high capital appreciation
ExplanationShares of companies with strong potential for growth and increasing value.
#3
What is the primary purpose of a bond in an investment portfolio?
To generate regular income through interest payments
ExplanationFixed-income securities providing predictable returns through interest payments.
#4
What is the primary purpose of an options contract in the financial markets?
To speculate on short-term price movements
ExplanationContracts granting the right to buy or sell assets at a predetermined price within a specified time.
#5
What is the role of a hedge fund in the financial markets?
Actively manage a pool of investments to generate returns
ExplanationInvestment funds employing various strategies to achieve higher returns than the market.
#6
What does the term 'diversification' refer to in the context of investment portfolios?
Spreading investments across different assets
ExplanationReduces risk by not putting all investments in one asset class or sector.
#7
Which financial ratio measures a company's ability to meet its short-term obligations?
Current Ratio
ExplanationCompares current assets to current liabilities, indicating liquidity.
#8
What does the Sharpe Ratio measure in the context of investment performance?
Risk-adjusted return of an investment
ExplanationEvaluates investment return relative to its risk, aiding in risk management.
#9
In finance, what is the 'efficient frontier'?
A line representing optimal portfolios with the highest return for a given level of risk
ExplanationGraphical representation of the best possible risk-return combinations.
#10
Which investment strategy involves buying a diversified portfolio and holding it for the long term without active trading?
Buy and hold
ExplanationLong-term strategy avoiding frequent trading, aiming to benefit from overall market growth.
#11
What is the primary objective of Modern Portfolio Theory (MPT)?
Minimize investment risk
ExplanationAims to achieve the highest possible return for a given level of risk.
#12
What does the term 'alpha' represent in the context of investment performance?
Excess return over a benchmark
ExplanationIndicates the investment's performance compared to the market index.
#13
What does the Capital Asset Pricing Model (CAPM) attempt to calculate?
The total return on an investment
ExplanationEstimates the expected return on an investment based on its risk.
#14
What is the role of a 'stop-loss order' in investing?
To sell a security when it reaches a specified price, limiting losses
ExplanationProtects against losses by automatically selling an asset at a predetermined price.
#15
What is the formula for calculating the compound annual growth rate (CAGR) of an investment?
(Ending Value / Beginning Value) ^ (1 / Number of Years) - 1
ExplanationMeasures the mean annual growth rate of an investment over a specified period.