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(Investor's Knowledge) Flashcards

7 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 (Investor's Knowledge) flashcards as text

  1. What does diversification primarily aim to reduce in an investment portfolio?

    Answer: Unsystematic (company-specific) risk

    Diversification spreads holdings across assets to reduce risk specific to any single company or sector.

  2. An investor's 'time horizon' refers to:

    Answer: How long until the money is needed

    Time horizon is the expected length of time before an investor needs to access their invested funds.

  3. Which account allows tax-free qualified withdrawals in retirement in the US?

    Answer: Roth IRA

    Roth IRA contributions are made after tax, so qualified withdrawals in retirement are tax-free.

  4. A P/E ratio measures a stock's price relative to its:

    Answer: Earnings per share

    The price-to-earnings ratio compares the share price to the company's earnings per share.

  5. Dollar-cost averaging involves:

    Answer: Investing a fixed amount at regular intervals

    Dollar-cost averaging means investing equal amounts on a set schedule regardless of price.

  6. Which investment generally carries the LOWEST risk?

    Answer: US Treasury bills

    Treasury bills are backed by the US government and considered nearly risk-free.

  7. Compound interest is best described as earning interest on:

    Answer: Both principal and accumulated interest

    Compound interest grows by earning returns on prior interest as well as the principal.