Finance Quiz: Level 1 Foundation | Harjesh Singh Kaushal, CFA

Question 1 of 10

You have Rs 1,00,000 in a savings account earning 2% interest per year. Inflation is running at 3% per year. After one year, the purchasing power of your money has:

Real return equals nominal return minus inflation. 2% minus 3% equals -1%. Your money grew in rupee terms but lost purchasing power. This is one of the most underappreciated risks in savings.

Question 2 of 10

You buy a 10-year corporate bond at par value. One month later, the central bank raises interest rates. The market price of your bond will most likely:

Bond prices and interest rates move in opposite directions. When new bonds pay higher rates, your existing bond (with its lower fixed coupon) becomes less attractive, so its market price falls. This is one of the most fundamental mechanics in fixed income.

Question 3 of 10

A company announces a 2-for-1 stock split. You owned 100 shares worth Rs 200 each before the split. Immediately after the split, your position is:

A stock split increases the number of shares and reduces the price proportionally. Your total position value stays exactly the same. 100 shares at Rs 200 equals the same as 200 shares at Rs 100.

Question 4 of 10

In economics, a recession is most traditionally defined as:

The standard technical definition of a recession is two consecutive quarters of negative real GDP growth. Stock markets and unemployment are indicators but are not the formal definition.

Question 5 of 10

When you buy a pure term life insurance policy, from a financial planning perspective you are primarily:

Human capital is the present value of your future earning power. Term insurance exists to replace that income stream for your dependents if you die prematurely. It is a hedge, not an investment.

Question 6 of 10

If the price of petrol rises 15% and the quantity purchased by drivers stays exactly the same, the demand for petrol is:

When quantity demanded does not change at all in response to a price change, demand is perfectly inelastic. Petrol is a classic near-inelastic good in the short run because there are few substitutes and people still need to get to work.

Question 7 of 10

A dividend paid by a company is best described as:

Shareholders are the owners of a company. A dividend is a distribution of profits to those owners. It is not free money: it comes directly from the company's cash, which reduces the company's retained earnings.

Question 8 of 10

When you buy a call option on a stock, you have:

A call option gives the buyer the right, but not the obligation, to buy the underlying asset at the strike price before expiry. The word "option" is the key: you can choose not to exercise it if it is not in your interest.

Question 9 of 10

Diversification in a portfolio is most effective when assets have:

Correlation of +1.0 means assets move perfectly together: diversification provides no benefit. Low or negative correlation means when one falls, the other may hold or rise, reducing overall portfolio volatility. This is the mathematical basis of diversification.

Question 10 of 10

What does "liquidity" mean when evaluating an investment?

Liquidity describes how quickly and at what cost you can convert an asset to cash. A savings account is highly liquid. Real estate and private equity are illiquid. Liquidity matters most when you need money urgently.