Investment Test 4

Question 1

What is compound interest?

Accepted Answer

Interest on principal plus accumulated interest

Answer

Compound interest is earned on the principal and previously accumulated interest.

Question 2

Using the Rule of 72, how long to double money at 8% annual return?

Accepted Answer

9 years

Answer

72 divided by 8 equals approximately 9 years.

Question 3

What is asset allocation?

Accepted Answer

Dividing investments among asset classes

Answer

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

Question 4

What is a capital gain?

Accepted Answer

Profit from selling an asset above its cost

Answer

A capital gain is the profit from selling an asset for more than its purchase price.

Question 5

In the US, long-term capital gains apply to assets held longer than what period?

Accepted Answer

1 year

Answer

Assets held longer than one year qualify for long-term capital gains rates.

Investment Practice Test