Principles of Investment Flashcards
7 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Principles of Investment flashcards as text
What does diversification primarily aim to reduce in a portfolio?
Answer: Unsystematic risk
Diversification reduces unsystematic (company-specific) risk by spreading investments across assets.
An investor with a 30-year horizon and high risk tolerance would most likely favor which asset class?
Answer: Equities
Equities offer higher long-term growth potential suitable for a long horizon and high risk tolerance.
What is the relationship between bond prices and interest rates?
Answer: They move in opposite directions
Bond prices fall when interest rates rise and rise when rates fall, an inverse relationship.
Which metric measures a stock's volatility relative to the overall market?
Answer: Beta
Beta measures a security's volatility relative to the broader market, where 1.0 equals market movement.
What does dollar-cost averaging involve?
Answer: Investing fixed amounts at regular intervals
Dollar-cost averaging invests a fixed amount on a regular schedule regardless of price.
Compound interest differs from simple interest because it earns interest on:
Answer: Principal plus accumulated interest
Compound interest earns returns on both the principal and previously accumulated interest.
A 'blue-chip' stock typically refers to shares of a company that is:
Answer: Large, well-established, and financially sound
Blue-chip stocks are large, stable, well-established companies with reliable performance.