Investment (Investor's Knowledge) 2

Question 1

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

Accepted Answer

Unsystematic (company-specific) risk

Answer

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

Question 2

An investor's 'time horizon' refers to:

Accepted Answer

How long until the money is needed

Answer

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

Question 3

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

Accepted Answer

Roth IRA

Answer

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

Question 4

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

Accepted Answer

Earnings per share

Answer

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

Question 5

Dollar-cost averaging involves:

Accepted Answer

Investing a fixed amount at regular intervals

Answer

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

Investment Practice Test