NAB Investment Basics 1

Question 1

What is the difference between stocks and bonds?

Accepted Answer

Stocks represent ownership in a company; bonds are loans to a company or government

Answer

Stocks give shareholders partial ownership and potential dividends, while bonds are debt instruments where you lend money in exchange for regular interest payments.

Question 2

What is diversification in investing?

Accepted Answer

Spreading investments across different asset types to reduce risk

Answer

Diversification reduces portfolio risk by spreading investments across different asset classes, industries, and geographies so poor performance in one area does not devastate the entire portfolio.

Question 3

What is a mutual fund?

Accepted Answer

A pooled investment vehicle where many investors' money is combined and managed by a professional

Answer

Mutual funds pool money from many investors to purchase a diversified portfolio of securities, managed by professional fund managers.

Question 4

What does ROI stand for and what does it measure?

Accepted Answer

Return on Investment — the gain or loss relative to the amount invested

Answer

ROI measures the profitability of an investment by comparing the net gain to the original cost, expressed as a percentage.

Question 5

What is a 401(k) retirement plan?

Accepted Answer

An employer-sponsored retirement savings plan with tax advantages

Answer

A 401(k) allows employees to save for retirement with pre-tax dollars, often with employer matching contributions, and tax-deferred growth.

(NAB) National Australia Bank Practice Test

(NAB) National Australia Bank Practice Test

NAB Investment Basics 1