Investment Investment MCQ 2 — Questions and Answers
Question 1: Which type of risk can be eliminated through diversification?
- Systematic risk
- Unsystematic risk (Correct answer)
- Market risk
- Interest rate risk
Correct answer: Unsystematic risk
Unsystematic (company-specific) risk can be reduced or eliminated by holding a diversified portfolio.
Question 2: A bond's price and its yield typically have what relationship?
- Direct (move together)
- Inverse (move opposite) (Correct answer)
- No relationship
- Always equal
Correct answer: Inverse (move opposite)
Bond prices and yields move inversely; when yields rise, prices fall and vice versa.
Question 3: What does P/E ratio measure?
- Price relative to earnings per share (Correct answer)
- Profit relative to expenses
- Price relative to equity
- Payout relative to earnings
Correct answer: Price relative to earnings per share
The price-to-earnings ratio compares a stock's price to its earnings per share.
Question 4: Which investment is generally considered the lowest risk?
- Common stock
- Corporate bonds
- U.S. Treasury bills (Correct answer)
- Real estate
Correct answer: U.S. Treasury bills
U.S. Treasury bills are backed by the federal government and considered virtually risk-free.
Question 5: Dollar-cost averaging involves:
- Investing a lump sum at once
- Investing fixed amounts at regular intervals (Correct answer)
- Timing the market peaks
- Selling during downturns
Correct answer: Investing fixed amounts at regular intervals
Dollar-cost averaging means investing a fixed amount regularly regardless of price.
Question 6: What is a mutual fund's NAV?
- Net annual value
- Net asset value per share (Correct answer)
- Nominal average yield
- New acquisition value
Correct answer: Net asset value per share
NAV is the net asset value per share, calculated as total assets minus liabilities divided by shares outstanding.
Question 7: Beta measures a stock's:
- Dividend growth rate
- Volatility relative to the market (Correct answer)
- Earnings stability
- Book value
Correct answer: Volatility relative to the market
Beta measures a stock's volatility or sensitivity relative to overall market movements.
Investment Investment MCQ 2
Which type of risk can be eliminated through diversification?