Investment (Investor's Knowledge) 4

Question 1

What is a capital gain?

Accepted Answer

Profit from selling an asset above its purchase price

Answer

A capital gain is the profit realized when an asset is sold for more than it cost.

Question 2

Index funds are designed to:

Accepted Answer

Match the performance of a market index

Answer

Index funds aim to replicate, not beat, the returns of a benchmark like the S&P 500.

Question 3

Buying stock 'on margin' means:

Accepted Answer

Borrowing money from a broker to invest

Answer

Margin trading involves borrowing funds from a broker to purchase securities.

Question 4

Inflation reduces the:

Accepted Answer

Purchasing power of money over time

Answer

Inflation erodes purchasing power, meaning money buys less over time.

Question 5

A 'bull market' is characterized by:

Accepted Answer

Rising prices and investor optimism

Answer

A bull market is a sustained period of rising asset prices and optimism.

Investment Practice Test