Risk
Index Funds
Math
Famous Ideas in Investing
Bubbles & Cycles
100

In finance, risk is synonymous with ________

Volatility 


100

Index funds aim to match, not beat the market’s _____

Performance or returns

100

If your money doubles in 12 years, what’s the approximate growth rate using the Rule of 72?

6%

100

The author of your textbook and one of his opinions:

John Bogle; many correct answers

100

In economic cycles, what moves value?

Fundamentals (productivity)

200

To reduce risk while investing, one should ___ their portfolio.

Diversify

200

An actively managed fund, tries (and often fails) to ______ the market and index funds

Outperform

200

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

200

Albert Einstein’s 8th Wonder of the world:

Compounding

200

When is the best time to buy?

During a market crash

300

Theory suggests higher risk should result in higher ______.

Return

300

Reduce _____ risk by spreading investments across many stocks (i.e. diversifying)

Idiosyncratic

300

Given FV, years, and interest rate, what is the formula to calculate PV?

PV = FV/(1+r)^n

300

Warren Buffet says you shouldn’t diversify if you  ____

Understand the companies you invest in extremely well and do a lot of market research

300

What was the first recorded bubble?

Tulip mania durring Dutch golden age

400

Risk is quantified by ____. (hint: a feature of a normal distribution)

standard deviation

400

An S&P 500 index fund is most likely to adjust its holdings when_______

When a company is added or removed from the index

400

If you earn 10% interest per year, roughly how much does $1,000 become in 3 years?

$1,000 × 1.1³ ≈ $1,331

400

According to Ben Grahm, in “value” investing, you buy stocks that are ____ compared to the S&P500

Less expensive

400

In the 1980s, the Japan stock market was worth how much of the world equity markets?

50%

500

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

500

Unlike actively managed funds, index funds usually have lower costs because they have less ______

management/active-trading

500

Which of these distributions suggests the highest volatility?


Yellow

500

Leverage is ___, and Warren Buffett says this about it:

____

Leverage is borrowing money to buy assets, and Buffett is generally strongly against this strategy.

500

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.