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 a capital gain?
Answer: Profit from selling an asset above its purchase price
A capital gain is the profit earned when an asset is sold for more than it cost.
Which of these is considered the safest type of investment in the US?
Answer: US Treasury securities
US Treasury securities are backed by the federal government and considered virtually risk-free.
The P/E ratio compares a stock's price to its:
Answer: Earnings per share
The price-to-earnings ratio divides share price by earnings per share to gauge valuation.
What is the primary advantage of a Roth IRA?
Answer: Tax-free qualified withdrawals
A Roth IRA offers tax-free qualified withdrawals since contributions are made with after-tax dollars.
An ETF differs from a mutual fund primarily because it:
Answer: Trades on an exchange throughout the day
ETFs trade on exchanges intraday like stocks, unlike mutual funds priced once daily.
Rebalancing a portfolio means:
Answer: Restoring target asset allocation by buying and selling
Rebalancing adjusts holdings back to the desired target allocation as prices drift.
What does 'time in the market beats timing the market' suggest?
Answer: Staying invested long-term outperforms predicting short-term moves
Long-term, consistent investing typically outperforms attempts to time market entries and exits.