Wall Street Risk IQ — WealthPsychology

01

Historically, what is the approximate average annual return of the S&P 500 (including dividends)?

A 4–5% B 7–10% C 12–15% D 18–20%

02

What does "2 and 20" refer to in the hedge fund industry?

A 2% management fee + 20% performance fee B 2:1 leverage + 20% risk capital C $2M minimum + 20-year lockup D 20% up years + 2% down

03

Which statistical measure describes how much an investment's returns move in relation to a benchmark?

A Alpha B Sharpe ratio C Beta D Standard deviation

04

What is the "disposition effect" in behavioral finance?

A Tendency to chase performance B Selling winners too early and holding losers too long C Overreacting to news events D Anchoring to purchase price

05

What does VIX measure?

A Volatility of bond yields B Market breadth C Implied volatility of S&P 500 options D Daily trading volume

06

In which year did the S&P 500 last drop more than 50%?

A 2001 B 2008 C 2020 D 1987

07

What is the Sharpe Ratio?

A Return / Risk B (Return - Risk-Free Rate) / Standard Deviation C Alpha / Beta D P/E divided by growth rate

08

If a bond has a duration of 7 years and interest rates rise by 1%, approximately what happens to the bond's price?

A Rises 7% B Falls 1% C Falls 7% D Stays unchanged

09

What does "alpha" represent in portfolio management?

A Market-driven return B Portfolio leverage C Excess return above the benchmark D Maximum drawdown

10

Which cognitive bias describes the tendency to search for information that confirms existing beliefs?

A Anchoring B Confirmation bias C Availability heuristic D Loss aversion

11

What is the "equity risk premium"?

A The fee charged by equity funds B The extra return stocks provide over risk-free assets C The volatility of equity markets D The return of small-cap stocks over large-cap

12

In a normal distribution, approximately what percentage of values fall within 2 standard deviations of the mean?

A 68% B 85% C 95% D 99.7%

13

What is "mean reversion" in financial markets?

A Prices always go up over time B Extreme values tend to move back toward the long-term average C Markets always recover losses within 10 years D Average returns are equal across all asset classes

14

What did 2002 Nobel Prize winner Daniel Kahneman primarily contribute to economics?

A Efficient market hypothesis B Capital Asset Pricing Model C Prospect theory and psychological decision-making biases D Modern Portfolio Theory

15

What is the primary risk of a leveraged ETF held over multiple days?

A Counterparty risk B Volatility decay (compounding drag) C Tracking error versus futures D Expense ratio compounding

16

What is the Efficient Market Hypothesis in its "semi-strong" form?

A All information, including private, is priced in B Only past prices are reflected in current prices C All publicly available information is reflected in prices D Markets are never efficient

17

Which of these is NOT a component of an options price according to Black-Scholes?

A Implied volatility B Time to expiration C Current stock price D Future dividend growth rate

18

What is "survivorship bias" in evaluating investment fund performance?

A Funds that survived charge more fees B Reporting only existing funds ignores closed underperformers C Top-performing funds survive longer D Historical data favors recent periods

19

What is a "fat tail" in the context of financial return distributions?

A A skewed distribution toward positive returns B Higher-than-normal probability of extreme outcomes C A distribution with more outliers removed D Long-only portfolio construction

20

Which of these best describes "dollar-cost averaging"?

A Investing all capital at market lows B Investing fixed dollar amounts at regular intervals C Rebalancing based on asset price changes D Hedging currency exposure with forward contracts