In finance, risk is synonymous with ________
Volatility
Index funds aim to match, not beat the market’s _____
Performance or returns
If your money doubles in 12 years, what’s the approximate growth rate using the Rule of 72?
6%
The author of your textbook and one of his opinions:
John Bogle; many correct answers
In economic cycles, what moves value?
Fundamentals (productivity)
To reduce risk while investing, one should ___ their portfolio.
Diversify
An actively managed fund, tries (and often fails) to ______ the market and index funds
Outperform
Suppose we play a game where I flip a coin and give you $10 if the coin lands on heads. What is the expected value of the game?
5
Albert Einstein’s 8th Wonder of the world:
Compounding
When is the best time to buy?
During a market crash
Theory suggests higher risk should result in higher ______.
Return
Reduce _____ risk by spreading investments across many stocks (i.e. diversifying)
Idiosyncratic
Given FV, years, and interest rate, what is the formula to calculate PV?
PV = FV/(1+r)^n
Warren Buffet says you shouldn’t diversify if you ____
Understand the companies you invest in extremely well and do a lot of market research
What was the first recorded bubble?
Tulip mania durring Dutch golden age
Risk is quantified by ____. (hint: a feature of a normal distribution)
standard deviation
An S&P 500 index fund is most likely to adjust its holdings when_______
When a company is added or removed from the index
If you earn 10% interest per year, roughly how much does $1,000 become in 3 years?
$1,000 × 1.1³ ≈ $1,331
According to Ben Grahm, in “value” investing, you buy stocks that are ____ compared to the S&P500
Less expensive
In the 1980s, the Japan stock market was worth how much of the world equity markets?
50%
What are the two types of risk? Define each briefly.
Idiosyncratic - The possibility that the price of an asset can rise or decline due to an event that specifically affects the asset but not the market as a whole
Systematic - common risks affecting the entire market; they can not be diversified away
Unlike actively managed funds, index funds usually have lower costs because they have less ______
management/active-trading
Which of these distributions suggests the highest volatility?
Yellow
Leverage is ___, and Warren Buffett says this about it:
____
Leverage is borrowing money to buy assets, and Buffett is generally strongly against this strategy.
Define RTM. What does it overpower?
This is the concept that any price that strays far from the long-term norm will again return, reverting to its normal state.
RTM overpowers resistance.