Investment Test 5

Question 1

What is the primary risk of investing in a single company's stock?

Accepted Answer

Concentration risk

Answer

Holding one stock exposes the investor to concentration risk tied to that company.

Question 2

What is an index fund designed to do?

Accepted Answer

Match a market index's performance

Answer

An index fund aims to replicate the performance of a market index.

Question 3

What is a 401(k)?

Accepted Answer

An employer-sponsored retirement plan

Answer

A 401(k) is an employer-sponsored, tax-advantaged retirement savings plan.

Question 4

What does 'buy low, sell high' describe?

Accepted Answer

A basic profit principle

Answer

Buying at a low price and selling at a higher price generates profit.

Question 5

What is inflation's effect on purchasing power over time?

Accepted Answer

Decreases it

Answer

Inflation erodes purchasing power, reducing what money can buy over time.

Investment Practice Test