Principles of Investment 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 Principles of Investment flashcards as text
What is liquidity in the context of investing?
Answer: How quickly an asset can be converted to cash without large loss
Liquidity describes how easily an asset can be sold for cash near its fair value.
Which investment vehicle pools money from many investors to buy a diversified basket of securities?
Answer: Mutual fund
A mutual fund pools investor money to buy a professionally managed diversified portfolio.
What does a dividend represent?
Answer: A distribution of company profits to shareholders
A dividend is a portion of a company's earnings paid out to shareholders.
Asset allocation refers to:
Answer: Dividing investments among asset categories
Asset allocation divides a portfolio among categories like stocks, bonds, and cash.
A higher expected return is generally associated with:
Answer: Higher risk
The risk-return tradeoff means higher potential returns require accepting higher risk.
What is an index fund designed to do?
Answer: Track the performance of a market index
An index fund passively tracks a benchmark index like the S&P 500.
Inflation erodes the value of investments by reducing:
Answer: Purchasing power
Inflation reduces purchasing power, so real returns matter more than nominal returns.