Investment Principles of Investment 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 earned when an asset is sold for more than it cost.

Question 2

Which of these is considered the safest type of investment in the US?

Accepted Answer

US Treasury securities

Answer

US Treasury securities are backed by the federal government and considered virtually risk-free.

Question 3

The P/E ratio compares a stock's price to its:

Accepted Answer

Earnings per share

Answer

The price-to-earnings ratio divides share price by earnings per share to gauge valuation.

Question 4

What is the primary advantage of a Roth IRA?

Accepted Answer

Tax-free qualified withdrawals

Answer

A Roth IRA offers tax-free qualified withdrawals since contributions are made with after-tax dollars.

Question 5

An ETF differs from a mutual fund primarily because it:

Accepted Answer

Trades on an exchange throughout the day

Answer

ETFs trade on exchanges intraday like stocks, unlike mutual funds priced once daily.

Investment Practice Test