Financial Investment Flashcards
7 cards from real Investment Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Investment flashcards as text
Which investment vehicle allows an investor to gain exposure to commodity prices without directly owning physical commodities?
Answer: Commodity futures ETFs
Commodity futures ETFs hold futures contracts on commodities, providing price exposure without the need to store or take physical delivery of the underlying asset.
What is the primary advantage of Treasury Inflation-Protected Securities (TIPS) over nominal Treasury bonds?
Answer: TIPS principal adjusts with the Consumer Price Index, preserving purchasing power
TIPS principal is adjusted based on CPI changes, so both the principal value and interest payments rise with inflation, protecting real purchasing power.
An investor who is 'long' a put option on a stock profits when:
Answer: The stock price falls below the strike price
A long put gives the holder the right to sell shares at the strike price; the option gains intrinsic value when the stock price falls below that strike.
What is the difference between the 'growth' and 'value' investment styles?
Answer: Growth investors target companies with high expected earnings growth; value investors seek underpriced securities
Growth investors pay a premium for companies with strong expected earnings expansion, while value investors look for stocks trading below their intrinsic worth.
Which of the following scenarios describes 'sequence of returns risk' for a retiree?
Answer: Experiencing large portfolio losses early in retirement while taking withdrawals
Sequence of returns risk means that large losses early in retirement, combined with ongoing withdrawals, can permanently deplete a portfolio even if average long-term returns are acceptable.
A stock's P/E ratio is 25 and the industry average P/E is 15. This most likely suggests the market believes the stock:
Answer: Has higher-than-average expected earnings growth or lower risk
A premium P/E relative to peers typically reflects market expectations of faster earnings growth or lower perceived risk for that company.
What is the main characteristic of a 'zero-coupon bond'?
Answer: It is sold at a deep discount and pays no periodic interest, returning face value at maturity
Zero-coupon bonds are issued at a discount to face value, make no periodic coupon payments, and return the full face value at maturity; the difference represents the investor's return.