IAR Investment Vehicles

Question 1

What is a mutual fund?

Accepted Answer

Pooled investment fund

Answer

A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities like stocks, bonds, and other assets. This pooling allows individual investors to gain exposure to a broad range of investments that might otherwise be inaccessible or too expensive to buy individually. The fund is professionally managed, with investment decisions made on behalf of all shareholders.

Question 2

What is a bond?

Accepted Answer

Loan to borrower

Answer

A bond represents a loan made by an investor to a borrower, which can be a corporation or government entity. In exchange for the loan, the borrower promises to pay the bondholder regular interest payments over a specified period and return the principal amount at maturity. Therefore, bonds are debt securities, signifying a borrowing relationship rather than ownership.

Question 3

What is an ETF?

Accepted Answer

Traded fund like stock

Answer

An Exchange Traded Fund (ETF) is an investment fund that holds a collection of assets, such as stocks, bonds, or commodities. Unlike traditional mutual funds, ETFs trade on stock exchanges throughout the day, similar to individual stocks. This allows investors to buy and sell shares of an ETF at market prices, offering flexibility and liquidity.

Question 4

Which asset is most liquid?

Accepted Answer

Cash

Answer

Liquidity refers to how easily and quickly an asset can be converted into cash without significantly affecting its market price. Cash is the most liquid asset because it is already in its most spendable form and requires no conversion process. Other assets like real estate or gold require a selling process, which takes time and may incur transaction costs, making them less liquid.

Question 5

What is an annuity?

Accepted Answer

Retirement income product

Answer

An annuity is a contract, typically with an insurance company, designed to provide a steady stream of income, often during retirement. Investors make payments (either a lump sum or a series of payments) to the insurer, who then promises to make regular disbursements back to the investor, either immediately or at a future date. Its primary purpose is to offer financial security and guaranteed income in later life.

IAR Practice Test

IAR Practice Test

IAR Investment Vehicles