Investments and Financial Instruments Quiz

Bonds are generally considered low-risk due to fixed interest payments and return of principal at maturity.

ROI measures the profitability of an investment by comparing the gain or loss relative to its cost.

EPS indicates the company's profitability by dividing its net earnings by the number of outstanding shares.

Blue chip stocks represent shares in large, well-established companies with a history of financial stability and reliable performance.

A 401(k) account is a retirement savings plan designed to help individuals save and invest for their retirement.

Diversification involves spreading investments across different assets to reduce the impact of a poor-performing investment on the overall portfolio.

Real estate is a physical asset and not classified as a financial instrument like stocks or bonds.

Financial intermediaries facilitate the flow of funds from savers (lenders) to borrowers in the financial system.

Preferred stock may have fixed dividends, priority over common stock in liquidation, and no voting rights—all of the mentioned characteristics.

The P/E ratio reflects the market's valuation of a company by comparing its stock price to its earnings per share.

The Sharpe ratio evaluates the return of an investment relative to its risk, providing insight into its performance.

Fundamental analysis involves assessing a company's financial health and performance to determine its true (intrinsic) value.

EMH posits that it is impossible to consistently achieve higher-than-average returns by analyzing publicly available information, as stock prices already incorporate all relevant data.

Alpha measures the investment's performance relative to a benchmark, indicating its ability to generate excess returns.