Investment Test 2

Question 1

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

Accepted Answer

Unsystematic risk

Answer

Inflation

Answer

Transaction costs

Answer

Capital gains tax

Question 2

An investor buys a stock at $50 and sells at $65 after one year, receiving $2 in dividends. What is the total return?

Accepted Answer

34%

Answer

30%

Answer

26%

Answer

15%

Question 3

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

Accepted Answer

Roth IRA

Answer

Traditional IRA

Answer

401(k) traditional

Answer

Brokerage account

Question 4

What is the term for the difference between a bond's purchase price and its face value when bought below par?

Accepted Answer

Discount

Answer

Premium

Answer

Coupon

Answer

Yield

Question 5

A mutual fund charges a fee deducted annually as a percentage of assets. What is this called?

Accepted Answer

Expense ratio

Answer

Load

Answer

Commission

Answer

Spread

Question 6

Which index tracks 500 large-cap US companies?

Accepted Answer

S&P 500

Answer

Dow Jones Industrial Average

Answer

Nasdaq Composite

Answer

Russell 2000

Question 7

What happens to existing bond prices when market interest rates rise?

Accepted Answer

They fall

Answer

They rise

Answer

They stay the same

Answer

They double