Investment Principles of Investment 2

Question 1

What does diversification primarily aim to reduce in a portfolio?

Accepted Answer

Unsystematic risk

Answer

Inflation risk

Answer

Interest rate risk

Answer

Market risk

Question 2

An investor with a 30-year horizon and high risk tolerance would most likely favor which asset class?

Accepted Answer

Equities

Answer

Money market funds

Answer

Treasury bills

Answer

Certificates of deposit

Question 3

What is the relationship between bond prices and interest rates?

Accepted Answer

They move in opposite directions

Answer

They move in the same direction

Answer

They are unrelated

Answer

Bonds always rise

Question 4

Which metric measures a stock's volatility relative to the overall market?

Accepted Answer

Beta

Answer

Alpha

Answer

P/E ratio

Answer

Dividend yield

Question 5

What does dollar-cost averaging involve?

Accepted Answer

Investing fixed amounts at regular intervals

Answer

Investing a lump sum at market lows

Answer

Selling during downturns

Answer

Buying only on dips

Question 6

Compound interest differs from simple interest because it earns interest on:

Accepted Answer

Principal plus accumulated interest

Answer

Only the principal

Answer

Only dividends

Answer

A fixed annual fee

Question 7

A 'blue-chip' stock typically refers to shares of a company that is:

Accepted Answer

Large, well-established, and financially sound

Answer

Newly listed and speculative

Answer

A penny stock

Answer

About to go bankrupt