Investment Principles of Investment 3

Question 1

What is liquidity in the context of investing?

Accepted Answer

How quickly an asset can be converted to cash without large loss

Answer

Liquidity describes how easily an asset can be sold for cash near its fair value.

Question 2

Which investment vehicle pools money from many investors to buy a diversified basket of securities?

Accepted Answer

Mutual fund

Answer

A mutual fund pools investor money to buy a professionally managed diversified portfolio.

Question 3

What does a dividend represent?

Accepted Answer

A distribution of company profits to shareholders

Answer

A dividend is a portion of a company's earnings paid out to shareholders.

Question 4

Asset allocation refers to:

Accepted Answer

Dividing investments among asset categories

Answer

Asset allocation divides a portfolio among categories like stocks, bonds, and cash.

Question 5

A higher expected return is generally associated with:

Accepted Answer

Higher risk

Answer

The risk-return tradeoff means higher potential returns require accepting higher risk.

Investment Practice Test