1. What is the purpose of a "stop-loss" order in trading?
A. To guarantee a profit on an investment
B. To prevent further losses by automatically selling a security at
a specified price
C. To ensure that a security will never drop below a certain price
D. To prevent the purchase of overvalued stocks
Answer: B) To prevent further losses by automatically selling a
security at a specified price
Rationale: A stop-loss order is designed to limit an investor's loss
on a security by automatically triggering a sale when the price
falls to a certain level. This helps manage risk in volatile markets.
2. What is the primary objective of "growth investing"?
A. To invest in companies that provide steady income through
dividends
B. To invest in companies with strong potential for capital
appreciation and earnings growth
C. To buy bonds and other fixed-income assets for stability
D. To avoid market volatility by investing in government
securities
Answer: B) To invest in companies with strong potential for
capital appreciation and earnings growth
,Rationale: Growth investing focuses on investing in companies
that are expected to grow at an above-average rate compared to
other companies in the market. Investors prioritize capital
appreciation over income generation.
3. When analyzing a company's financial health, which ratio would
most likely be used to assess its liquidity?
A. Price-to-earnings (P/E) ratio
B. Current ratio
C. Return on equity (ROE)
D. Dividend yield
Answer: B) Current ratio
Rationale: The current ratio is a measure of a company's ability to
meet its short-term obligations with its short-term assets. A ratio
above 1 typically indicates good liquidity, suggesting the company
can cover its current liabilities.
4. Which of the following is a typical characteristic of a balanced
mutual fund?
A. It only invests in stocks
B. It focuses on high-growth sectors
C. It invests in both equities and fixed-income securities
D. It follows a "buy and hold" strategy exclusively
Answer: C) It invests in both equities and fixed-income securities
,Rationale: Balanced mutual funds are designed to provide a mix of
both growth (stocks) and income (bonds). The aim is to offer a
more stable return by balancing risk through diversification
between these two types of assets.
5. What does the term "market capitalization" refer to?
A. The total amount of debt a company has outstanding
B. The total value of a company's outstanding shares of stock
C. The total number of shares a company has issued
D. The rate at which a company’s stock price is expected to grow
Answer: B) The total value of a company's outstanding shares of
stock
Rationale: Market capitalization is calculated by multiplying the
current share price by the total number of outstanding shares. It is
a measure of a company’s total value in the market and is used to
categorize companies as large-cap, mid-cap, or small-cap.
6. Which of the following is an example of a non-systematic risk?
A. A general market downturn affecting all stocks
B. A company's management changes that impact its future
performance
C. A change in interest rates by the central bank
D. An economic recession that leads to lower consumer spending
, Answer: B) A company's management changes that impact its
future performance
Rationale: Non-systematic risk refers to risks that are specific to
an individual company or industry, such as changes in
management, product failures, or regulatory changes. This type of
risk can be mitigated through diversification.
7. In asset management, which of the following best describes
"liquidity risk"?
A. The risk that an asset's value will decline over time
B. The risk that an asset cannot be quickly sold without a
significant price reduction
C. The risk of default on debt payments
D. The risk associated with changes in interest rates
Answer: B) The risk that an asset cannot be quickly sold without a
significant price reduction
Rationale: Liquidity risk refers to the possibility that an asset
cannot be bought or sold in the market without significantly
affecting its price. This is especially a concern for less frequently
traded assets.
8. Which of the following is a characteristic of an "exchange-
traded fund" (ETF)?
A. It is actively managed and requires a high minimum investment
A. To guarantee a profit on an investment
B. To prevent further losses by automatically selling a security at
a specified price
C. To ensure that a security will never drop below a certain price
D. To prevent the purchase of overvalued stocks
Answer: B) To prevent further losses by automatically selling a
security at a specified price
Rationale: A stop-loss order is designed to limit an investor's loss
on a security by automatically triggering a sale when the price
falls to a certain level. This helps manage risk in volatile markets.
2. What is the primary objective of "growth investing"?
A. To invest in companies that provide steady income through
dividends
B. To invest in companies with strong potential for capital
appreciation and earnings growth
C. To buy bonds and other fixed-income assets for stability
D. To avoid market volatility by investing in government
securities
Answer: B) To invest in companies with strong potential for
capital appreciation and earnings growth
,Rationale: Growth investing focuses on investing in companies
that are expected to grow at an above-average rate compared to
other companies in the market. Investors prioritize capital
appreciation over income generation.
3. When analyzing a company's financial health, which ratio would
most likely be used to assess its liquidity?
A. Price-to-earnings (P/E) ratio
B. Current ratio
C. Return on equity (ROE)
D. Dividend yield
Answer: B) Current ratio
Rationale: The current ratio is a measure of a company's ability to
meet its short-term obligations with its short-term assets. A ratio
above 1 typically indicates good liquidity, suggesting the company
can cover its current liabilities.
4. Which of the following is a typical characteristic of a balanced
mutual fund?
A. It only invests in stocks
B. It focuses on high-growth sectors
C. It invests in both equities and fixed-income securities
D. It follows a "buy and hold" strategy exclusively
Answer: C) It invests in both equities and fixed-income securities
,Rationale: Balanced mutual funds are designed to provide a mix of
both growth (stocks) and income (bonds). The aim is to offer a
more stable return by balancing risk through diversification
between these two types of assets.
5. What does the term "market capitalization" refer to?
A. The total amount of debt a company has outstanding
B. The total value of a company's outstanding shares of stock
C. The total number of shares a company has issued
D. The rate at which a company’s stock price is expected to grow
Answer: B) The total value of a company's outstanding shares of
stock
Rationale: Market capitalization is calculated by multiplying the
current share price by the total number of outstanding shares. It is
a measure of a company’s total value in the market and is used to
categorize companies as large-cap, mid-cap, or small-cap.
6. Which of the following is an example of a non-systematic risk?
A. A general market downturn affecting all stocks
B. A company's management changes that impact its future
performance
C. A change in interest rates by the central bank
D. An economic recession that leads to lower consumer spending
, Answer: B) A company's management changes that impact its
future performance
Rationale: Non-systematic risk refers to risks that are specific to
an individual company or industry, such as changes in
management, product failures, or regulatory changes. This type of
risk can be mitigated through diversification.
7. In asset management, which of the following best describes
"liquidity risk"?
A. The risk that an asset's value will decline over time
B. The risk that an asset cannot be quickly sold without a
significant price reduction
C. The risk of default on debt payments
D. The risk associated with changes in interest rates
Answer: B) The risk that an asset cannot be quickly sold without a
significant price reduction
Rationale: Liquidity risk refers to the possibility that an asset
cannot be bought or sold in the market without significantly
affecting its price. This is especially a concern for less frequently
traded assets.
8. Which of the following is a characteristic of an "exchange-
traded fund" (ETF)?
A. It is actively managed and requires a high minimum investment
