#1
Which of the following is a fundamental principle of investment?
Diversification
ExplanationSpreading investments across different assets to reduce risk.
#2
What does ROI stand for in the context of financial decision-making?
Return on Investment
ExplanationThe ratio of net profit to the initial investment.
#3
What is the primary goal of portfolio diversification?
Minimizing risk
ExplanationReducing the overall risk of a portfolio by investing in different assets.
#4
Which of the following is NOT a common type of investment risk?
Dividend risk
ExplanationThe risk associated with the variability of dividend payments.
#5
What does the acronym 'IRA' stand for in the context of retirement savings?
Individual Retirement Account
ExplanationA tax-advantaged retirement account for individuals.
#6
What is the formula for calculating compound interest?
P(1 + r/n)^(nt)
ExplanationThe formula for computing interest on an initial amount of money.
#7
Which financial ratio measures a company's ability to pay its short-term debt obligations?
Current ratio
ExplanationThe ratio of current assets to current liabilities.
#8
What is the concept of 'risk tolerance' in investment?
The willingness of an investor to take risks for higher returns
ExplanationThe level of risk an investor is comfortable with.
#9
What does the Sharpe Ratio measure?
Return adjusted for risk
ExplanationThe excess return per unit of risk in an investment.
#10
What is the concept of 'opportunity cost' in investment?
The potential return from the next best alternative that is foregone
ExplanationThe cost of forgoing the next best alternative when making a decision.
#11
What is the concept of 'time value of money' in investment?
Money is more valuable now than in the future
ExplanationThe idea that a dollar today is worth more than a dollar in the future.
#12
What does the 'efficient market hypothesis' propose?
Markets always reflect all available information
ExplanationPrices in financial markets already reflect all known information.
#13
What does the Capital Asset Pricing Model (CAPM) help determine?
The expected return of an investment
ExplanationThe relationship between risk and expected return.
#14
What is the formula to calculate the Net Present Value (NPV) of an investment?
NPV = Future Value - Present Value
ExplanationThe difference between the present value of cash inflows and outflows.