#1
What is the primary goal of investment portfolio diversification?
To minimize risk
ExplanationRisk reduction through spreading investments.
#2
Which of the following is an example of a diversified investment?
Investing in multiple asset classes
ExplanationSpreading investments across various types of assets.
#3
What is the purpose of including bonds in an investment portfolio?
To reduce volatility
ExplanationStabilizing portfolio value through less fluctuation.
#4
Which investment strategy aims to maintain a constant asset allocation, rebalancing periodically?
Strategic asset allocation
ExplanationMaintaining fixed asset mix through periodic adjustments.
#5
What is the term for spreading investments across different geographical regions or countries?
International diversification
ExplanationDistributing investments globally.
#6
What does the term 'asset allocation' refer to in the context of investment portfolio management?
The distribution of investments among different asset classes
ExplanationHow investments are divided among various asset types.
#7
Which of the following is a potential drawback of over-diversification in an investment portfolio?
Difficulty in monitoring
ExplanationChallenges in managing numerous investments.
#8
What is the term for the measure of how much the price of a security or market index fluctuates?
Volatility
ExplanationDegree of price variation.
#9
In the context of investment portfolio diversification, what does the correlation between assets measure?
The relationship between asset returns
ExplanationDegree of movement similarity between assets' returns.
#10
Which factor is NOT typically considered when assessing an investor's risk tolerance?
Current market conditions
ExplanationMarket conditions are external and dynamic.
#11
What is the key benefit of adding alternative investments, such as hedge funds, to a portfolio?
Diversification and reduced correlation
ExplanationIncreased portfolio stability and reduced risk through varied assets.
#12
In the context of investment portfolio management, what does the term 'Sharpe ratio' measure?
Risk-adjusted return
ExplanationReturn relative to risk taken.
#13
What role does a financial advisor play in the context of investment portfolio management?
Providing investment advice and guidance
ExplanationOffering expertise to make informed decisions.