Investment Investment Vehicles and Instruments 3

Question 1

What is a futures contract?

Accepted Answer

An agreement to buy or sell an asset at a predetermined price on a specific future date

Answer

A futures contract obligates the buyer to purchase and the seller to sell an asset at a set price on a specified future date, commonly used for commodities and financial instruments.

Question 2

What is a zero-coupon bond?

Accepted Answer

A bond that pays no periodic interest but is sold at a discount and redeems at face value

Answer

A zero-coupon bond pays no periodic interest; instead, it is issued at a deep discount and redeems at full face value at maturity, with the difference representing the investor's return.

Question 3

What is an index fund?

Accepted Answer

A passively managed fund designed to replicate the performance of a specific market index

Answer

An index fund passively tracks a market index like the S&P 500, offering broad market exposure with low fees and minimal active management.

Question 4

What is a hedge fund?

Accepted Answer

A private, actively managed investment fund using diverse strategies to generate returns for accredited investors

Answer

Hedge funds are private investment vehicles available to accredited investors that use aggressive strategies including leverage, derivatives, and short selling to seek absolute returns.

Question 5

What is a convertible bond?

Accepted Answer

A bond that can be exchanged for a fixed number of shares of the issuing company's stock

Answer

A convertible bond is a hybrid debt security that pays interest like a regular bond but can be converted into a predetermined number of the issuer's common shares.

Investment Practice Test

Investment Practice Test

Investment Investment Vehicles and Instruments 3