Stock Advisor Trainer 5

Question 1

A Stock Advisor trainer explains 'concentration risk.' What does it refer to?

Accepted Answer

Too much capital in a single stock or sector

Answer

Concentration risk arises when a portfolio is heavily weighted in one position or sector, magnifying losses if it falls.

Question 2

What does a high dividend yield combined with a falling stock price sometimes signal?

Accepted Answer

A potential dividend trap or financial distress

Answer

A yield inflated by a dropping price can signal trouble, as the dividend may be cut if earnings weaken.

Question 3

A trainee asks about an index fund. What is its core feature?

Accepted Answer

It tracks a market benchmark with low fees

Answer

Index funds passively replicate a benchmark like the S&P 500, offering broad exposure at low cost.

Question 4

Why does a trainer recommend an emergency fund before aggressive investing?

Accepted Answer

To avoid selling investments at a loss during emergencies

Answer

An emergency fund prevents forced selling of investments at bad times to cover unexpected expenses.

Question 5

What does the term 'liquidity' describe for a stock?

Accepted Answer

How easily it can be bought or sold without moving the price

Answer

Liquidity reflects how quickly a stock can be traded near its current price, with high-volume stocks being most liquid.

Stock Advisor Practice Test