Chap 1 Investment

What is the primary goal of investment?

• To ensure the safety of principal

• To earn a regular income

• To generate a higher return on funds over the long term

• To speculate on short-term market movements

Which of the following is considered a traditional asset class?

• Commodities

• Hedge funds

• Private equity

• Stocks

What is the term for spreading investments across various financial assets to reduce risk?

• Diversification

• Allocation

• Concentration

Which of the following is a characteristic of a bear market?

• Rising stock prices

• High investor confidence

• Economic expansion

• Falling stock prices

What does liquidity refer to in an investment context?

• The ease of converting an investment into cash

• The level of risk in an investment

• The rate of return on an investment

• The ease of converting an investment into cash

Who is known for developing the Efficient Market Hypothesis (EMH)?

• Warren Buffet

• Eugene Fama

• Benjamin Graham

• Harry Markowitz

According to Modern Portfolio Theory, what is the optimal portfolio?

• One that offers the highest return with the lowest risk

• One that consists only of stocks

• One that offers the best possible return for a given level of risk

• One that is fully diversified across all asset classes

What does the Capital Asset Pricing Model (CAPM) describe?

• The relationship between risk and expected return for a portfolio

• The relationship between systematic risk and expected return for individual securities

• The optimal capital structure for a company

• The pricing of options and other derivative securities

What is the main proposition of the Behavioral Finance Theory?

• Markets are always efficient

• Investors are always rational

• Psychological factors can affect investment decisions

• All securities are priced fairly

The concept of 'animal spirits' is most closely associated with which of the following?

• Efficient Market Hypothesis

• Modern Portfolio Theory

• Capital Asset Pricing Model

• Behavioral Finance Theory