Investopedia

Question 1

What is investing?

Answer 1

Investing is the act of allocating resources, usually money, in order to generate income or profit.

Question 2

True or False: Investing always involves risk.

Answer 2

True

Question 3

What are the two main types of investments?

Answer 3

The two main types of investments are stocks and bonds.

Question 4

Fill in the blank: The primary goal of investing is to achieve ______.

Answer 4

growth

Question 5

What is a stock?

Answer 5

A stock represents ownership in a company and constitutes a claim on part of the company’s assets and earnings.

Question 6

What is a bond?

Answer 6

A bond is a fixed income instrument that represents a loan made by an investor to a borrower.

Question 7

True or False: Stocks typically offer higher returns than bonds over the long term.

Answer 7

True

Question 8

What is diversification?

Answer 8

Diversification is the practice of spreading investments across various financial instruments, industries, and other categories to reduce risk.

Question 9

What does ‘market risk’ refer to?

Answer 9

Market risk refers to the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets.

Question 10

What is the purpose of a portfolio?

Answer 10

A portfolio is a collection of financial investments such as stocks, bonds, commodities, and cash equivalents.

Question 11

Fill in the blank: The ______ is a measure of the stock market’s performance.

Answer 11

index

Question 12

What does ‘asset allocation’ mean?

Answer 12

Asset allocation is the process of dividing investments among different asset categories, such as stocks, bonds, and cash.

Question 13

True or False: Higher potential returns generally come with higher risks.

Answer 13

True

Question 14

What is a mutual fund?

Answer 14

A mutual fund is an investment vehicle that pools money from many investors to purchase securities.

Question 15

What is the role of a financial advisor?

Answer 15

A financial advisor provides guidance on investments, financial planning, and managing financial resources.

Question 16

What does ‘liquidity’ refer to in investing?

Answer 16

Liquidity refers to how quickly and easily an asset can be converted into cash without affecting its market price.

Question 17

Fill in the blank: The ______ market is where securities are bought and sold after their initial sale.

Answer 17

secondary

Question 18

What is a dividend?

Answer 18

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.

Question 19

True or False: All stocks pay dividends.

Answer 19

False

Question 20

What is a capital gain?

Answer 20

A capital gain is the increase in the value of an asset or investment over time.

Question 21

What is the difference between ‘bull market’ and ‘bear market’?

Answer 21

A bull market is characterized by rising prices, while a bear market is characterized by falling prices.

Question 22

Fill in the blank: ______ risk is the risk of losing money on an investment due to market fluctuations.

Answer 22

Market

Question 23

What is a robo-advisor?

Answer 23

A robo-advisor is an automated platform that provides financial planning services with minimal human intervention.

Question 24

True or False: Real estate is considered a tangible asset.

Answer 24

True

Question 25

What is an exchange-traded fund (ETF)?

Answer 25

An ETF is a type of fund that owns underlying assets and divides ownership of those assets into shares.

Question 26

Fill in the blank: A ______ is an investment strategy that involves buying low and selling high.

Answer 26

trading strategy

Question 27

What does 'risk tolerance' mean?

Answer 27

Risk tolerance is the degree of variability in investment returns that an individual is willing to withstand.

Question 28

What is the difference between active and passive investing?

Answer 28

Active investing involves ongoing buying and selling of investments, while passive investing involves a buy-and-hold strategy.

Question 29

True or False: Bonds are generally considered safer than stocks.

Answer 29

True

Question 30

What is the significance of the price-to-earnings (P/E) ratio?

Answer 30

The P/E ratio measures a company's current share price relative to its earnings per share, indicating how much investors are willing to pay for a dollar of earnings.

Question 31

Fill in the blank: A ______ is a type of investment that is backed by physical assets.

Answer 31

commodity

Question 32

What is a stock split?

Answer 32

A stock split is when a company divides its existing shares into multiple shares to boost liquidity.

Question 33

What is the purpose of a prospectus?

Answer 33

A prospectus is a formal document that provides details about an investment offering to the public.

Question 34

True or False: Inflation can erode the purchasing power of investment returns.

Answer 34

True

Question 35

What is a hedge fund?

Answer 35

A hedge fund is an investment fund that employs various strategies to earn active return for its investors.

Question 36

Fill in the blank: The ______ is the return on an investment expressed as a percentage of the original investment.

Answer 36

rate of return

Question 37

What does 'volatility' refer to in the context of investing?

Answer 37

Volatility refers to the degree of variation in trading prices over time, indicating the level of risk.

Question 38

What is behavioral finance?

Answer 38

Behavioral finance is the study of the effects of psychological factors on the financial behaviors of investors.

Question 39

True or False: All investors have the same risk tolerance.

Answer 39

False

Question 40

What is a financial market?

Answer 40

A financial market is a marketplace where buyers and sellers engage in the exchange of financial assets.

Question 41

Fill in the blank: A ______ is a company that issues shares to raise capital.

Answer 41

corporation

Question 42

What does 'due diligence' mean in investing?

Answer 42

Due diligence refers to the investigation and evaluation of an investment before making a decision.

Question 43

What is the primary purpose of the Securities and Exchange Commission (SEC)?

Answer 43

The primary purpose of the SEC is to protect investors and maintain fair, orderly, and efficient markets.

Question 44

True or False: Real estate investments typically appreciate in value over time.

Answer 44

True

Question 45

What is an initial public offering (IPO)?

Answer 45

An IPO is the process through which a private company offers shares to the public for the first time.

Question 46

Fill in the blank: ______ is the total amount of money that an investor has in a particular security.

Answer 46

Position

Question 47

What is a credit rating?

Answer 47

A credit rating is an assessment of the creditworthiness of a borrower, indicating the likelihood of default.

Question 48

What does 'short selling' mean?

Answer 48

Short selling is the practice of selling borrowed securities with the expectation that the price will decline.

Question 49

True or False: Mutual funds can have different investment objectives.

Answer 49

True

Question 50

What is a financial bubble?

Answer 50

A financial bubble is a market phenomenon characterized by a rapid increase in asset prices followed by a sharp decline.

Question 51

Fill in the blank: ______ is a strategy that involves investing in a diversified portfolio to minimize risk.

Answer 51

Asset diversification