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Test 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.

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

    Answer: Unsystematic risk

    Diversification spreads investments to reduce company-specific (unsystematic) risk.

  2. An investor buys a stock at $50 and sells at $65 after one year, receiving $2 in dividends. What is the total return?

    Answer: 34%

    Total return = ($15 gain + $2 dividend) / $50 = 34%.

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

    Answer: Roth IRA

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

  4. What is the term for the difference between a bond's purchase price and its face value when bought below par?

    Answer: Discount

    A bond bought below face value is bought at a discount.

  5. A mutual fund charges a fee deducted annually as a percentage of assets. What is this called?

    Answer: Expense ratio

    The expense ratio is the annual fee as a percentage of fund assets.

  6. Which index tracks 500 large-cap US companies?

    Answer: S&P 500

    The S&P 500 tracks 500 large-cap US companies.

  7. What happens to existing bond prices when market interest rates rise?

    Answer: They fall

    Bond prices move inversely to interest rates, so rising rates lower prices.