Saving vs

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Questions and Answers

Which of the following best describes the difference between saving and investing?

  • Saving is for short-term goals while investing is for long-term goals. (correct)
  • Saving is about increasing wealth while investing is about paying for short-term goals.
  • Saving is low-risk while investing is high-risk.
  • Saving is liquid and safe while investing is less liquid and higher risk.

What is risk tolerance?

  • The possibility of a negative financial outcome.
  • The return on an investment.
  • The difference between saving and investing.
  • The amount of money you can afford to lose in an investment. (correct)

Why is investing considered higher risk compared to saving?

  • Investing is less liquid. (correct)
  • Investing is safer than saving.
  • Investing is for short-term goals.
  • Investing has higher returns.

Which of the following is the correct definition of risk-free return?

<p>The return on an investment with zero risk (A)</p> Signup and view all the answers

What is the formula for market risk premium?

<p>Expected market return - risk-free rate (C)</p> Signup and view all the answers

How can risk be managed in investing?

<p>Through asset allocation and diversification (D)</p> Signup and view all the answers

Which of the following best describes the relationship between risk and return in investing?

<p>Risk and return always move in the same direction (B)</p> Signup and view all the answers

What is the main purpose of asset allocation in managing risk?

<p>To determine the percentage of assets to invest in different asset classes (A)</p> Signup and view all the answers

Which of the following is NOT one of the risk tolerance factors mentioned in the text?

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

What is the best strategy for long-term investing, according to the text?

<p>Investing in assets with negative correlation (C)</p> Signup and view all the answers

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