Question 1

Trading implies
A) frequently buying securities
B) frequently selling securities
C) frequently buying and selling securities
D) investing

Accepted Answer

Trading involves actively buying and selling securities in order to make a profit, so the correct choice is C. A and B only represent one side of the trading process, while D refers to a more passive approach to investing.

Question 2

The terms "investing" and "trading" refer to purchasing and selling securities.

Accepted Answer

Investing and trading both involve buying and selling securities, such as stocks or bonds, but the difference lies in the length of time that the securities are held. Investing typically involves a long-term strategy, while trading is focused on short-term gains.

Question 3

Liquidity refers to the ease of selling a stock for a capital gain.

Accepted Answer

Liquidity refers to the ability to buy or sell an asset without causing significant movement in the price. While it can impact the ease of selling a stock, it also encompasses factors such as trading volume, bid-ask spreads, and market depth.

Question 4

Efficient markets suggests that investors will outperform the market consistently.

Accepted Answer

Efficient markets theory suggests that markets are rational and all available information is already reflected in the stock prices, making it difficult for investors to consistently outperform the market.

Question 5

Risk
A) depends solely on price fluctuations
B) should be maximized to increase returns
C) is reduced through specialization
D) refers to the uncertainty of returns

Accepted Answer

Risk refers to the uncertainty of returns and can originate from various factors such as market changes, economic instability, or company performance. Maximizing risk can lead to high returns, but it also increases the chances of losses. Specialization can reduce risk, but cannot eliminate it entirely. Therefore, the best answer is D, which accurately defines risk.

Question 6

Diversification reduces
A) income
B) capital gains
C) taxes
D) risk

Accepted Answer

Diversification is the practice of spreading investments across different assets and/or sectors to reduce the risk of loss. Therefore, it reduces risk.

Question 7

Financial investments are made in efficient markets.The existence of these markets suggests that
A) investors cannot earn superior returns
B) investors cannot expect to outperform the market consistently
C) securies prices are random
D) bearing additional risk will not increase return

Accepted Answer

Efficient markets imply that all available information is already reflected in security prices, making it difficult for investors to identify undervalued or overvalued securities consistently. However, it does not mean that investors cannot earn superior returns or that securities prices are random. Moreover, bearing additional risk may still increase return, but it would be commensurate with the level of risk taken.

Question 8

The anticipated return and the realized return often differ.

Accepted Answer

The anticipated return is an estimated or expected return, while the realized return is the actual return received. These two values often differ due to unforeseen events or changes in market conditions.

Question 9

Reasons for saving and investing include1. need for funds to meet emergencies2. retirement income3. desire to leave an estate for children
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of the above

Accepted Answer

All of the above reasons are valid reasons for saving and investing. Saving and investing can help individuals prepare for unexpected emergencies, provide a source of income during retirement, and leave a financial legacy for their children or loved ones.

Question 10

The investor should specify the objectives of investing.

Accepted Answer

It is important for an investor to specify their investment objectives such as earning a certain level of return, achieving long-term growth, or generating income. This helps in selecting appropriate investments and developing a sound investment strategy.

Question 11

CFA is a professional designation for individuals seeking positions as portfolio managers.

Accepted Answer

CFA stands for Chartered Financial Analyst and is a professional designation for individuals working in the investment management industry, including portfolio managers.

Question 12

Capital gains are the sole source of the return on an investment.

Accepted Answer

Capital gains are only one source of return on an investment, along with dividends, interest, and other forms of income.

Question 13

Which of the following is not an investment in thelayperson's general use of the term
A) equipment
B) land
C) stock
D) savings account

Accepted Answer

The answer of Which of the following is not an...

Question 14

Which of the following is an investment as definedby an economist
A) equipment
B) land
C) stock
D) savings account

Accepted Answer

The answer of Which of the following is an investment...

Question 15

Investments are made in anticipation of a return.

Accepted Answer

Investments are made with the expectation of earning a return or profit on the invested capital.

Question 16

Portfolio assessment should include measures of both risk and return.

Accepted Answer

Portfolio assessment should involve analyzing both risk and return, as they are both important factors in evaluating the performance and potential of a portfolio. Return measures the profitability of an investment, while risk measures the likelihood and magnitude of losses. By considering both factors, investors can make more informed decisions about portfolio management and investment strategies.

Question 17

An informed investor can expect to consistently outperform the market.

Accepted Answer

While an informed investor may have advantages over uninformed investors, it does not guarantee consistent outperformance of the market. Market trends, unpredictable events, and other factors can still impact investment performance.

Question 18

Stocks are initially sold in the "primary" market and subsequently traded in the "secondary" market.

Accepted Answer

This is correct. The primary market is where stocks are first issued and sold, often through an initial public offering (IPO), while the secondary market is where previously issued stocks are traded between investors.

Question 19

Risk is the uncertainty that the realized return may differ from the expected.

Accepted Answer

This is the definition of risk in finance.

Question 20

Many investments such as stock have commoncharacteristics including1. existence of secondary markets2. risk3. potential for capital gains
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of the above

Accepted Answer

Stock investments typically have secondary markets where they can be traded, carry inherent risks, and offer the potential for capital gains, making all the listed characteristics applicable.

Quiz 1: An Introduction to Investments Private

Trading implies

The terms "investing" and "trading" refer to purchasing and selling securities.

Liquidity refers to the ease of selling a stock for a capital gain.

Efficient markets suggests that investors will outperform the market consistently.

Risk

Diversification reduces

Financial investments are made in efficient markets.The existence of these markets suggests that

The anticipated return and the realized return often differ.

Reasons for saving and investing include1. need for funds to meet emergencies2. retirement income3. desire to leave an estate for children