FREE Investment MCQ Questions and Answers
What does the term "diversification" mean in the context of investment?
Diversification involves spreading investments across various asset classes to reduce overall risk. It helps to minimize the impact of poor performance in any one investment.
What is an ETF (Exchange-Traded Fund)?
An ETF is a type of investment fund that holds a diverse portfolio of assets and trades on stock exchanges like a single stock, providing investors with exposure to various markets and asset classes.
What is a "blue-chip" stock?
Blue-chip stocks refer to shares of large, established companies with a history of stability, strong financial performance, and a reliable reputation.
What is the primary goal of a long-term investor?
Long-term investors aim to achieve growth over an extended period, focusing on overcoming short-term market volatility for better overall returns.
What is the role of a financial advisor?
A financial advisor helps individuals make informed investment decisions based on their financial goals, risk tolerance, and market knowledge.
What is the purpose of an investment portfolio?
An investment portfolio is a collection of various assets, such as stocks, bonds, and real estate, designed to spread risk and optimize returns through diversification.
Which economic factor is likely to influence the value of commodities like gold and oil?
Political stability can affect the supply and demand dynamics of commodities like gold and oil, leading to changes in their prices.
What is the purpose of a "stop-loss" order in trading?
A stop-loss order is placed to automatically sell a stock when its price drops to a predetermined level, limiting potential losses.
Which investment type is considered to have the highest potential for returns but also the highest risk?
Venture capital involves investing in early-stage companies with high growth potential. While the returns can be substantial, the risk of loss is also high due to the uncertain nature of startups.
What is an initial public offering (IPO)?
An IPO occurs when a private company offers its shares to the public for the first time, allowing investors to buy ownership stakes in the company.
Which investment account offers tax advantages for retirement savings in the United States?
A 401(k) is a tax-advantaged retirement account that allows individuals to save and invest for retirement while deferring taxes on contributions and investment gains until withdrawal.
What is the primary purpose of conducting fundamental analysis in stock investing?
Fundamental analysis involves assessing a company's financial statements, management, industry, and economic conditions to determine its intrinsic value and make informed investment decisions.
Which investment option provides a hedge against inflation?
Precious metals like gold are often considered a hedge against inflation because their value tends to rise during periods of economic uncertainty and high inflation.
Which of the following investment options is generally considered the least risky?
Corporate bonds are debt securities issued by companies. They are considered less risky compared to stocks because they represent a fixed-income stream and have higher priority in case of bankruptcy.
What is the "risk-return trade-off" in investing?
The risk-return trade-off states that higher potential returns are associated with higher levels of risk. Investors must find a balance that aligns with their risk tolerance and financial goals.
What does the term "compounding" refer to in the context of investing?
Compounding involves generating earnings not only on the initial investment but also on the reinvested earnings over time, leading to exponential growth.