#1
Which of the following is considered a low-risk investment?
Bonds
ExplanationBonds are generally considered low-risk due to fixed interest payments and higher likelihood of principal repayment.
#2
What is a 'blue-chip' stock?
A stock of a well-established and financially stable company
ExplanationBlue-chip stocks belong to established, financially sound companies with a history of stability and reliability.
#3
What is the significance of the P/E ratio (Price-to-Earnings ratio) in evaluating stocks?
It measures the market sentiment towards a stock
ExplanationP/E ratio gauges investor sentiment by comparing a stock's price to its earnings, indicating whether it is overvalued or undervalued.
#4
What is the key characteristic of a 'bear market'?
Falling stock prices and pessimistic investor sentiment
ExplanationA bear market is characterized by declining stock prices and a prevailing pessimistic outlook among investors.
#5
What is the purpose of a '401(k)' retirement account?
To save for retirement with tax advantages
ExplanationA 401(k) retirement account is designed to help individuals save for retirement, offering tax advantages for contributions.
#6
What does the term 'diversification' mean in the context of investments?
Spreading investments across different assets
ExplanationDiversification involves spreading investments to reduce risk by exposure to different asset classes.
#7
In finance, what does the acronym ROI stand for?
Return on Investment
ExplanationROI measures the profitability of an investment, indicating the return relative to the initial cost.
#8
What is the standard deviation used for in investment analysis?
Assessing the degree of variation in returns
ExplanationStandard deviation measures the extent of fluctuation in investment returns, indicating risk.
#9
Which of the following factors can impact interest rates in the financial markets?
Political stability
ExplanationPolitical stability influences investor confidence and can affect interest rates.
#10
In the context of bonds, what does the term 'yield to maturity' (YTM) represent?
The total return on investment over the holding period
ExplanationYield to maturity indicates the overall return on a bond investment, considering interest and principal payments over its holding period.
#11
What is the primary purpose of the Sharpe ratio in investment analysis?
To assess the risk-adjusted return of an investment
ExplanationThe Sharpe ratio evaluates the risk-adjusted performance of an investment, helping investors make informed decisions.
#12
What is the Capital Asset Pricing Model (CAPM) used for in investment analysis?
To estimate the expected return on an investment
ExplanationCAPM estimates the expected return based on risk, helping in investment decision-making.
#13
What is the Sharpe ratio used for in the context of investment performance?
Measuring the risk-adjusted return of an investment
ExplanationSharpe ratio assesses investment performance, considering both return and risk.
#14
What does the term 'liquidity risk' refer to in investment?
The risk of not being able to sell an asset quickly at its market price
ExplanationLiquidity risk involves the potential difficulty of selling an asset promptly at its current market value.
#15
What is the primary purpose of a hedge fund in the investment landscape?
To minimize risk by investing in diverse assets
ExplanationHedge funds aim to reduce risk and enhance returns by employing various investment strategies across different assets.
#16
What does the term 'beta' measure in the context of investment risk?
The sensitivity of an investment's returns to market movements
ExplanationBeta measures how an investment's returns react to changes in the broader market, indicating its market sensitivity.
#17
What is the 'efficient market hypothesis' (EMH) in finance?
The theory that it is impossible to consistently achieve higher-than-average returns
ExplanationEMH suggests that markets quickly incorporate all available information, making it challenging to consistently outperform the market.