#1
Which of the following is a characteristic of stocks?
High liquidity
ExplanationStocks are highly liquid, meaning they can be easily bought or sold in the market.
#2
What does the term 'diversification' mean in investment?
Reducing risk by investing in various assets
ExplanationDiversification involves spreading investments across different assets to minimize risk.
#3
What is the primary purpose of a mutual fund?
To pool money from investors and invest in securities
ExplanationMutual funds gather funds from investors to invest in a diversified portfolio of securities.
#4
What does the term 'asset allocation' refer to in investment?
The distribution of investments among different asset classes
ExplanationAsset allocation involves dividing investments among various asset classes to achieve a balanced portfolio.
#5
What does the term 'compounding' refer to in investing?
Earning interest on both the initial principal and the accumulated interest
ExplanationCompounding involves earning interest on the initial principal and the interest that accumulates over time.
#6
Which of the following is an example of a fixed-income security?
Bond
ExplanationBonds are considered fixed-income securities as they provide a predetermined income stream.
#7
What does the term 'ROE' stand for in finance?
Return on Equity
ExplanationROE represents the return generated on shareholders' equity in a company.
#8
What is the main characteristic of a bond?
Fixed income stream
ExplanationBonds provide a fixed income stream through periodic interest payments.
#9
Which investment strategy aims to buy and hold a diversified portfolio for the long term?
Value investing
ExplanationValue investing involves holding a diverse portfolio with a focus on long-term gains.
#10
What is a 'hedge fund'?
A type of investment fund that aims to reduce risk
ExplanationHedge funds are investment funds designed to minimize risk and provide consistent returns.
#11
What is the primary goal of a 401(k) retirement account?
To enable tax-deferred growth of retirement savings
Explanation401(k) accounts allow for tax-deferred growth of savings for retirement purposes.
#12
What is the primary objective of an ETF (Exchange-Traded Fund)?
To track the performance of a specific index or asset class
ExplanationETFs aim to replicate the performance of a particular index or asset class.
#13
What is the concept of 'risk tolerance' in investing?
The willingness to take on more risk for higher returns
ExplanationRisk tolerance is the extent to which an investor is willing to accept risk in pursuit of higher returns.
#14
What does the term 'asset under management (AUM)' refer to?
The amount of money a portfolio manager oversees
ExplanationAUM represents the total value of assets that a portfolio manager is responsible for managing.
#15
What is a 'call option' in the context of options trading?
Right to buy an asset at a specified price
ExplanationA call option grants the holder the right to buy an asset at a predetermined price.
#16
What is the key feature of a Real Estate Investment Trust (REIT)?
Invests in real estate and distributes income to shareholders
ExplanationREITs invest in real estate properties and distribute income to shareholders.
#17
What is a 'stock split'?
The process of dividing a company's shares into smaller units
ExplanationA stock split involves dividing a company's existing shares into multiple shares to adjust the stock price.
#18
What is a 'callable bond'?
A bond that can be redeemed by the issuer before maturity
ExplanationA callable bond allows the issuer to redeem the bond before its maturity date.
#19
What does the term 'short selling' mean?
Selling an asset with the intention of buying it back later at a lower price
ExplanationShort selling involves selling an asset with the expectation of repurchasing it at a lower price in the future.