#1
Which of the following best describes diversification in investment?
Investing in multiple asset classes
ExplanationSpreading investments across different types of assets to reduce risk.
#2
What does the term 'risk tolerance' refer to in investment?
The amount of risk a person is willing to take with their investments
ExplanationThe level of uncertainty an investor is comfortable with regarding potential losses.
#3
What is the concept of 'time horizon' in investment?
The period over which an investment is held
ExplanationThe length of time an investor expects to hold an investment before needing the funds.
#4
Which of the following is a common measure of investment risk?
Sharpe ratio
ExplanationA metric that assesses the relationship between risk and return in an investment.
#5
What is the main purpose of asset allocation in investment?
To diversify risk
ExplanationAssigning a portion of investments to different asset classes to spread risk.
#6
What is the relationship between risk and return in investments?
Higher risk may lead to higher or lower returns
ExplanationPotential for greater gains comes with the potential for greater losses.
#7
Which of the following investment options is generally considered the least risky?
Government bonds
ExplanationDebt securities issued by a government, typically considered low risk due to government backing.
#8
What does the standard deviation measure in relation to investment?
The volatility or risk of an investment
ExplanationA statistical measure of the dispersion of returns for an investment.
#9
Which of the following is NOT a factor to consider when assessing investment risk?
Historical performance
ExplanationPast performance alone is not a reliable indicator of future risk.