Investment Investment MCQ 3

Question 1

A diversified portfolio is best described as one that:

Accepted Answer

Spreads investments across varied assets

Answer

Diversification spreads investments across different assets to reduce overall risk.

Question 2

Which account offers tax-free qualified withdrawals in retirement?

Accepted Answer

Roth IRA

Answer

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

Question 3

Compound interest differs from simple interest because it:

Accepted Answer

Earns interest on interest

Answer

Compound interest earns returns on both the principal and previously accumulated interest.

Question 4

An index fund aims to:

Accepted Answer

Match a market index's performance

Answer

Index funds passively track and replicate the performance of a market index.

Question 5

What is liquidity in investing?

Accepted Answer

How easily an asset converts to cash

Answer

Liquidity measures how quickly and easily an asset can be converted to cash without losing value.

Investment Practice Test