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Investment 101: Asset Classes and Risk Ladder

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Investment 101: Asset Classes and Risk Ladder

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Questions and Answers

What is the primary characteristic that defines an asset class?

The risk level of the investment

The geographic location of the investment

The laws and regulations governing the investment

The similarity in characteristics among investments within the class (correct)

What is a bond typically characterized by?

A fixed interest rate paid to the lender

A loan made by a borrower to an investor

A loan made by an investor to a government agency

A debt instrument representing a loan made by an investor to a borrower (correct)

What is the safest investment option in the investment risk ladder?

Certificates of deposit (CDs)

Stocks

Cash bank deposit (correct)

Bonds

What is the primary benefit of a certificate of deposit (CD) over a savings account?

Higher interest rates Signup and view all the answers

What is a disadvantage of keeping money in a savings account?

The interest earned is usually low and may not beat inflation Signup and view all the answers

What is the penalty for withdrawing money early from a certificate of deposit (CD)?

Early withdrawal penalties Signup and view all the answers

How are mutual funds typically valued?

At the end of each trading day Signup and view all the answers

What is the primary factor that determines bond rates?

Interest rates Signup and view all the answers

What is the minimum investment required to invest in a mutual fund?

$1,000 per share Signup and view all the answers

What is a key characteristic that distinguishes ETFs from mutual funds?

Trading throughout the day Signup and view all the answers

What is the primary benefit of ETFs for investors?

Ease of trading and broad coverage Signup and view all the answers

What is the relationship between shareholders and a company's assets?

Shareholders have a claim on the company's assets only in the event of liquidation Signup and view all the answers