Finance Career Basics Quiz

False (B)

Market Efficiency and Behavioral Finance

<p>wealth</p> Signup and view all the answers

<p>Portfolio Manager = Manages investment portfolios for clients Stockbroker = Facilitates the buying and selling of stocks Financial Advisor = Provides financial planning and investment advice Security Analyst = Evaluates securities for investment potential</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>risk</p> Signup and view all the answers

<p>compensated</p> Signup and view all the answers

<p>Expected return = Anticipated return for a future period Realized return = Actual return over a past period Risk = Possibility that realized return will differ from expected return Risk aversion = Dislike of risk unless compensated for it</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>No-free-lunch rule</p> Signup and view all the answers

<p>Stock indices generally fluctuate less than individual stocks. (D)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>To earn a return</p> Signup and view all the answers

<p>risk</p> Signup and view all the answers

<p>Return = Earnings from an investment Risk = Potential for loss or gain Efficient markets = Prices reflect all available information Diversification = Spreading investments to reduce risk</p> Signup and view all the answers

<p>Diversification (A)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>Lower risk</p> Signup and view all the answers

<p>To channel funds from savers to borrowers (A)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Initial Public Offering</p> Signup and view all the answers

<p>consumption</p> Signup and view all the answers

<p>Issuers raise money by selling new securities (D)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>Financial markets</p> Signup and view all the answers

<p>German Government Bonds and MSCI Stock Markets (A)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>1980 to 2021</p> Signup and view all the answers

<p>lower</p> Signup and view all the answers

<p>MSCI US Stock Market = High Return, High Risk German ST Government Bonds = Low Return, Low Risk German LT Government Bonds = Moderate Return, Moderate Risk Inflation = Variable Return, Low Risk</p> Signup and view all the answers

<p>MSCI US Stock Market (C)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Higher returns with increased risk</p> Signup and view all the answers

<p>risk</p> Signup and view all the answers

<p>2010 (C)</p> Signup and view all the answers

<p>The investor is required to have at least 30% of the total value of the assets they short-sell (C)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Direct and Indirect investing</p> Signup and view all the answers

<p>Portfolio</p> Signup and view all the answers

<p>Market Efficiency and Behavioral Finance (C)</p> Signup and view all the answers

<p>Portfolio Performance Evaluation = Assessing the returns and risk of an investment portfolio CAPM and Multifactor Models = Estimating expected asset returns based on risk Efficient Diversification = Minimizing risk through spreading investments Investing using Derivatives = Using contracts based on asset prices for speculation or hedging</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Understanding how to assess the value and manage bond portfolios</p> Signup and view all the answers

The process of making choices about how to manage and grow your money.

A vital part of retirement planning, ensuring you have enough money for your later years.

A strategy for managing investments with the aim of maximizing returns while considering the level of risk.

A concept in finance stating that investing in a variety of assets can reduce overall risk.

A model used to calculate the expected return of an asset based on its risk and the overall market performance.

The potential loss of money due to changes in exchange rates. It occurs when investing in assets in another currency.

The profit or loss generated from an investment, expressed as a percentage of the initial investment.

The possibility of losing money on an investment.

The idea that financial markets are always incorporating new information into asset prices, making it impossible to consistently earn above-average returns.

The process of allocating investments across different asset classes to reduce overall risk.

The relationship between risk and expected return. Higher risk investments generally have the potential for higher returns.

A method of valuing assets based on their expected cash flows and risk.

The opportunity cost of holding cash, which is the potential return that could have been earned by investing it.

The anticipated return on an investment in the future.

The actual return earned on an investment over a past period.

The possibility that the realized return of an investment will be different than the expected return. It represents the uncertainty surrounding the actual return.

The principle that there is no free return, meaning that investors need to take risk to earn a return above the risk-free rate.

Investors generally tend to dislike risk, unless they are compensated for it.

The process of choosing investments, evaluating the trade-off between expected return and risk, considering factors like investment horizon and risk tolerance.

The level of risk an investor is willing to take, influenced by investment horizon and personal tolerance.

The historical performance of different asset classes, showing their returns and volatility over a specific period. This data helps investors understand past trends and make informed decisions about investments.

A visual representation of the historical performance of various asset classes, such as stocks, bonds, and inflation, over time. The chart allows investors to observe how asset prices have fluctuated and compare their relative returns and volatility.

The rate at which the general price level of goods and services in an economy increases over time. Inflation erodes the purchasing power of money.

A type of bond issued by a government with a short maturity, typically less than a year. These bonds are generally considered less risky than long-term bonds because their value is less susceptible to interest rate fluctuations.

A type of bond issued by a government with a long maturity, typically more than 10 years. These bonds offer higher potential returns compared to short-term bonds but are more sensitive to interest rate changes.

A broad market index that tracks the performance of a large number of publicly traded stocks, providing insights into the overall health of the stock market. It is commonly used as a benchmark for investment performance.

A broad market index that tracks the performance of a large number of European publicly traded stocks, providing insights into the overall health of the European stock market. It is commonly used as a benchmark for investment performance.

Financial markets connect those with excess funds (savers) to those who need funds (borrowers). They allow firms and governments to raise money by selling securities, while investors can earn returns by investing their excess funds.

Financial markets allow individuals to adjust their consumption patterns over time by using securities to store wealth and transfer spending power to the future.

Financial markets help allocate capital to its most productive uses by directing funds towards projects and businesses with the highest potential returns.

By facilitating the exchange of securities, financial markets reduce the costs associated with trading, making it easier and cheaper for buyers and sellers to connect.

Primary markets involve the initial sale of new securities by issuers. Investment bankers often help with this process.

Secondary markets involve trading of existing securities between investors. Brokers and dealers often facilitate these transactions.

An initial public offering (IPO) is the first time a company offers its shares to the public. This is a type of primary market transaction.

Seasoned new issues are subsequent sales of securities by a company that has already gone public. These are also primary market transactions.

The percentage of the selling price that is left after deducting the cost of goods sold. A higher maintenance margin indicates that the retailer has more room for price adjustments and can handle price fluctuations more effectively.

The practice of borrowing securities (like shares) and selling them in the market with the expectation of buying them back later at a lower price to make a profit. This strategy generates profit when prices fall.

Indicates how efficiently prices reflect all available information in the market. If markets are efficient, it is difficult to outperform the market consistently by using any specific investment strategy.

The process of valuing a company's stock based on its future earnings potential and risk. It involves analyzing financial statements, market conditions, and company-specific factors.

The risk associated with the possibility of losing money on an investment. Risk is a crucial factor in investment decision-making, as higher potential returns usually come with higher levels of risk.