#1
What is the primary goal of diversification in investment?
To reduce risk by spreading investments across different assets
ExplanationReduce risk through asset spreading.
#2
What is the purpose of a stop-loss order in trading?
To limit potential losses by automatically selling an asset if its price falls to a specified level
ExplanationAutomatic sale to limit losses.
#3
What does the term 'bear market' refer to in financial markets?
A market characterized by falling prices and negative investor sentiment
ExplanationMarket with falling prices, negative sentiment.
#4
What does the term 'liquidity' mean in the context of financial markets?
The ability to convert an asset into cash quickly without significant price impact
ExplanationQuick asset-to-cash conversion.
#5
What is the significance of the P/E ratio (Price-to-Earnings ratio) in stock analysis?
It measures the company's profitability relative to its stock price
ExplanationMeasures profitability relative to stock price.
#6
Which financial instrument is considered a low-risk investment?
Bonds
ExplanationBonds are low-risk.
#7
What is the formula for calculating the Return on Investment (ROI)?
ROI = (Final Value - Initial Value) / Initial Value
ExplanationROI formula: (Final - Initial) / Initial.
#8
In the context of options trading, what does 'call option' signify?
The right to buy an asset at a specified price
ExplanationRight to buy at a set price.
#9
What is the role of a financial advisor in investment planning?
To provide personalized financial advice and help in creating an investment strategy
ExplanationOffers personalized investment guidance.
#10
What is the purpose of a 401(k) retirement account?
To save for retirement through tax-advantaged contributions and investments
ExplanationRetirement savings with tax benefits.
#11
What is the concept of 'buy and hold' strategy in investing?
Holding onto investments for an extended period without active trading
ExplanationLong-term investment without active trading.
#12
What does the term 'market capitalization' refer to in the context of stocks?
The total value of all outstanding shares of a company's stock
ExplanationTotal stock value by shares.
#13
What does the Efficient Market Hypothesis (EMH) state about financial markets?
Markets are always perfectly efficient, and it is impossible to beat the market consistently
ExplanationMarkets are always efficient, unbeatable.
#14
What is the significance of the Dividend Discount Model (DDM) in stock valuation?
It values stocks based on their expected future cash flows from dividends
ExplanationValuates stocks via future dividends.
#15
What is the concept of 'alpha' in the context of portfolio management?
The excess return of a portfolio compared to its benchmark
ExplanationPortfolio's excess return.