What is meant by the term 'market volatility'?

What is meant by the term 'market volatility'?

• A. The fluctuation of stock prices over time
• B. The stability of interest rates
• C. The tendency of bonds to maintain fixed prices
• D. The average return on investment over a year

Answer: (A)

Market volatility refers to the fluctuation of stock prices over time, making the first choice the correct one. This fluctuation indicates how much and how quickly the value of an asset, such as stock or a market index, can change. High volatility means that the price of the asset can change dramatically in a short period, while low volatility indicates that prices remain more stable over time. Understanding market volatility is crucial for investors as it helps them gauge risk levels, make informed investment decisions, and strategize around potential market movements. The other options pertain to different financial concepts. Stability of interest rates refers to fixed levels of borrowing costs, which is not directly related to the fluctuations of stock prices. The tendency of bonds to maintain fixed prices deals with fixed-income securities, which typically have less volatility compared to stocks. The average return on investment over a year quantifies performance rather than price movement, making it distinct from the concept of market volatility.

Market volatility refers to the fluctuation of stock prices over time, making the first choice the correct one. This fluctuation indicates how much and how quickly the value of an asset, such as stock or a market index, can change. High volatility means that the price of the asset can change dramatically in a short period, while low volatility indicates that prices remain more stable over time. Understanding market volatility is crucial for investors as it helps them gauge risk levels, make informed investment decisions, and strategize around potential market movements.

The other options pertain to different financial concepts. Stability of interest rates refers to fixed levels of borrowing costs, which is not directly related to the fluctuations of stock prices. The tendency of bonds to maintain fixed prices deals with fixed-income securities, which typically have less volatility compared to stocks. The average return on investment over a year quantifies performance rather than price movement, making it distinct from the concept of market volatility.