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Quizzes > Business & Finance

Investing Knowledge Quiz: Check Your Fundamentals

Quick, free investment knowledge check. Instant results.

Editorial: Review CompletedCreated By: Sam JasonUpdated Aug 28, 2025
Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art depicting elements related to Investing Knowledge Assessment Quiz.

This investing knowledge quiz helps you gauge your grasp of risk, diversification, and markets with 15 quick multiple-choice questions. Get instant results to see where you stand and what to review next; if you want more practice, explore our investment basics test, take a focused financial markets knowledge quiz, or start with a beginner investing quiz.

Which of the following investment vehicles is generally considered the least risky?
Cryptocurrencies
Real estate
Corporate stocks
Government bonds
Government bonds typically have lower default risk and are backed by sovereign issuers, making them less volatile. Other assets like stocks and cryptocurrencies carry higher price fluctuation and credit risk.
What does ROI stand for in financial metrics?
Rate of Investment
Return on Investment
Return on Income
Ratio of Interest
ROI stands for Return on Investment, which measures the gain or loss generated relative to the amount of money invested. It is a key metric for comparing the efficiency of different investments.
Portfolio diversification primarily aims to reduce which of the following?
Systematic risk
Transaction costs
Liquidity
Unsystematic risk
Diversification spreads investments across assets to reduce unsystematic risk, which is specific to individual investments. Systematic risk, affecting the entire market, cannot be eliminated by diversification alone.
The price-to-earnings ratio (P/E) is calculated by dividing a company's stock price by its...
Book value
Earnings per share
Market capitalization
Dividend yield
The P/E ratio is defined as stock price divided by earnings per share (EPS). This ratio helps investors assess how much they're paying for each dollar of earnings.
Which term describes the degree of variation in an asset's price over time?
Duration
Liquidity
Volatility
Yield
Volatility measures the extent of price fluctuations of an asset over time. Higher volatility indicates larger and more frequent price swings.
Which investment vehicle pools funds from many investors to purchase a diversified portfolio?
Individual stocks
Mutual funds
Hedge funds
Certificates of deposit
Mutual funds aggregate money from multiple investors to invest in a diversified mix of assets. This structure provides small investors access to professional management and diversification.
Which of the following is a basic risk management strategy that involves setting a predetermined exit price?
Hedging
Asset allocation
Stop-loss order
Dollar-cost averaging
A stop-loss order automatically sells an asset when its price falls to a specified level, limiting potential losses. It is a common tool for managing downside risk.
If you bought a stock at $50 and sold it at $60, what is your simple ROI?
10%
50%
20%
30%
Simple ROI is calculated as (Sell Price - Buy Price) / Buy Price Ã- 100%. In this case, ($60 - $50) / $50 Ã- 100% = 20%.
Two assets with a negative correlation will tend to...
Have identical returns
Move in the same direction
Move in opposite directions
Eliminate all risk
Negative correlation means when one asset's value rises, the other tends to fall. This property is useful in diversification to smooth overall portfolio returns.
A forward P/E ratio differs from a trailing P/E ratio because it uses...
Forecasted earnings
Dividend payments
Historical earnings
Current book value
Forward P/E is based on analysts' projected future earnings rather than past earnings. Trailing P/E uses actual historical EPS data.
In financial markets, a bear market is characterized by...
Rising prices
Stable interest rates
Falling prices
High trading volume only
A bear market involves prolonged declines in asset prices, typically by 20% or more from recent highs. It reflects widespread pessimism among investors.
Which term refers to how easily an asset can be bought or sold without affecting its price?
Liquidity
Volatility
Risk premium
Beta
Liquidity measures an asset's ability to be traded quickly at or near its market value. Highly liquid assets can be converted to cash with minimal price impact.
Among these, which is typically considered the most liquid investment?
Money market fund
Fine art
Real estate
Private equity
Money market funds invest in short-term, high-quality instruments and allow quick redemptions, making them highly liquid. Real estate and private equity are much less liquid.
A high P/E ratio might suggest that a stock is...
Overvalued
Generating no earnings
Undervalued
Risk-free
High P/E ratios imply investors are paying more per dollar of earnings, which may indicate the stock is overvalued relative to its actual earnings.
Value at Risk (VaR) is a metric that estimates...
Price-to-earnings ratio
Minimum guaranteed return
Potential loss over a given period at a given confidence level
Maximum expected return
VaR quantifies the worst expected loss over a set time frame at a specified confidence interval. It is widely used to assess portfolio risk under normal market conditions.
According to the Capital Asset Pricing Model (CAPM), the expected return of an asset equals the risk-free rate plus...
Asset's standard deviation
Dividend yield
Company's debt-to-equity ratio
Beta times market risk premium
CAPM states E(Ri) = Rf + βi Ã- (Rm - Rf), where βi measures sensitivity to market movements and (Rm - Rf) is the market risk premium.
A stock with a beta greater than 1 is generally considered to be...
Risk-free
Less volatile than the market
More volatile than the market
Uncorrelated with the market
Beta measures sensitivity to market movements. A beta above 1 indicates the stock tends to amplify market moves, making it more volatile than the overall market.
The earnings yield is the inverse of which valuation metric?
Dividend yield
Price-to-earnings ratio
Debt-to-equity ratio
Price-to-book ratio
Earnings yield is defined as EPS divided by price, which is the inverse of the P/E ratio (price divided by EPS). It expresses earnings as a percentage of price.
Hedging with derivatives such as options is an example of which risk management principle?
Risk avoidance
Risk transfer
Risk retention
Risk pooling
Using derivatives like options transfers potential losses to the counterparty, effectively shifting risk away from the investor. This is known as risk transfer.
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Learning Outcomes

  1. Analyse different investment vehicles and their risk profiles
  2. Evaluate strategies for portfolio diversification
  3. Identify key financial metrics like ROI and P/E ratio
  4. Apply fundamental risk management principles
  5. Demonstrate understanding of market trends and fluctuations
  6. Master essential investing terminology and concepts

Cheat Sheet

  1. Investment Vehicles - Dive into the world of stocks, bonds, mutual funds and ETFs to discover how each option balances return and risk. Knowing these vehicles is like picking the right ride for your financial journey - some are thrill-seekers, others are smooth cruisers.
  2. Portfolio Diversification - Spread your investments across different assets to avoid roller-coaster swings in your portfolio. It's the classic "don't put all your eggs in one basket" strategy, helping you stay cool when markets get spicy.
  3. Return on Investment (ROI) - Calculate ROI using (Net Profit ÷ Cost of Investment) × 100% to measure how well your money is working for you. It's like grading your own financial report card!
  4. Price-to-Earnings (P/E) Ratio - Use P/E = Market Value per Share ÷ Earnings per Share (EPS) to see how much investors pay for each dollar of profit. A high P/E can mean big growth hopes, while a low one might signal a hidden bargain.
  5. Risk Management - Learn to set stop-loss orders and review your holdings regularly so you're never caught off guard by a market plunge. Think of it as putting on a helmet before the financial roller coaster.
  6. Market Trends - Keep an eye on headlines, charts and key indicators to forecast potential market moves. It's like tuning into a weather report but for your cash - sunny days, storms and all!
  7. Investing Terminology - Master buzzwords like "bull market," "bear market," "liquidity" and "volatility" so you can follow financial chatter like a pro. Clear lingo means clearer decisions.
  8. Asset Allocation - Mix stocks, bonds and cash in proportions that match your goals and comfort zone. It's like crafting a recipe: the right blend makes your portfolio taste just right.
  9. Compound Interest - Watch your money snowball by reinvesting earnings with A = P(1 + r/n)nt. Starting early is your secret superpower for wealth growth!
  10. Efficient Market Hypothesis (EMH) - Explore the idea that markets reflect all available info, making it tough to consistently beat average returns without extra risk. Embrace this concept to set realistic expectations.
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