#1
Which of the following best describes diversification in investment?
Spreading investments across different assets
ExplanationMinimizing risk by not putting all eggs in one basket.
#2
What is the 'buy and hold' strategy in investing?
Holding onto investments for the long term
ExplanationInvesting with a long-term perspective, avoiding frequent trading.
#3
What does the term 'risk tolerance' refer to in investment?
The willingness to take on investment risks
ExplanationDetermining how much risk an investor can comfortably handle.
#4
Which of the following is a characteristic of a growth stock?
High potential for capital appreciation
ExplanationStocks expected to grow at an above-average rate compared to the market.
#5
What is the role of correlation in portfolio management?
To assess the relationship between asset returns
ExplanationUnderstanding how different assets move in relation to each other.
#6
What is the concept of 'time horizon' in investment?
The period for which an investment is held
ExplanationDetermining how long an investor plans to hold an investment.
#7
What does the term 'opportunity cost' mean in investment?
The potential return from a missed investment opportunity
ExplanationThe benefit given up by choosing one alternative over another.
#8
What is the significance of the Sharpe ratio in investment analysis?
To measure the risk-adjusted return of an investment
ExplanationEvaluating the return of an investment relative to its risk.