Investment Principles and Financial Decision-Making Quiz

Challenge your understanding of investment management with these questions covering ROI, compound interest, risk, diversification, and more!

Practice Learn Test

Which of the following is a fundamental principle of investment?

High risk, high return

Low risk, low return

Diversification

Investing without research

What does ROI stand for in the context of financial decision-making?

Return on Investment

Rate of Inflation

Revenue on Insurance

Risk of Investment

What is the primary goal of portfolio diversification?

Maximizing returns

Minimizing risk

Investing in high-risk assets

Achieving short-term gains

Which of the following is NOT a common type of investment risk?

Market risk

Inflation risk

Credit risk

Dividend risk

What does the acronym 'IRA' stand for in the context of retirement savings?

Investment Return Account

Individual Retirement Account

Interest Rate Adjustment

Inflation Risk Assessment

What is the formula for calculating compound interest?

P × r × t

P(1 + r/n)^(nt)

P + r + t

P ÷ (1 + r/n)^(nt)

Which financial ratio measures a company's ability to pay its short-term debt obligations?

Current ratio

Debt-to-Equity ratio

Return on Investment ratio

Price-to-Earnings ratio

What is the concept of 'risk tolerance' in investment?

The willingness of an investor to take risks for higher returns

The fear of an investor towards market volatility

The inability of an investor to accept losses

The stability of an investment portfolio

What does the Sharpe Ratio measure?

Return adjusted for risk

Price volatility

Market liquidity

Company profitability

#10

What is the concept of 'opportunity cost' in investment?

The cost incurred from investing in high-risk assets

The potential return from the next best alternative that is foregone

The price of investing in low-yield securities

The cost of investment management fees

#11

What is the concept of 'time value of money' in investment?

Money grows over time due to compound interest

The longer you wait, the less valuable your money becomes

Money is more valuable now than in the future

Money has the same value regardless of time

#12

What does the 'efficient market hypothesis' propose?

Markets always reflect all available information

Markets are inefficient due to information asymmetry

Prices in markets are arbitrary and random

Market trends can be predicted with certainty

#13

What does the Capital Asset Pricing Model (CAPM) help determine?

The fair value of a security

The optimal capital structure

The expected return of an investment

The company's financial leverage

#14

What is the formula to calculate the Net Present Value (NPV) of an investment?

NPV = Initial Investment / Discount Rate

NPV = Future Value - Present Value

NPV = Present Value - Future Value

NPV = Cash Flows / Discount Rate