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Investment 101: Asset Classes and Risk

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Questions and Answers

What is the primary risk associated with certificates of deposit (CDs)?

Inflation risk

Fluctuating interest rates

Early withdrawal penalties (correct)

Credit risk

What is the primary characteristic of an asset class?

Similar laws and regulations (correct)

Similar profit potential

Similar market prices

Similar investor profiles

What is the primary advantage of a cash bank deposit?

High returns on investment

Easy liquidity

Precise knowledge of interest earned (correct)

High risk, high reward

What is the primary role of the borrower in a bond transaction?

To issue a fixed interest rate to the lender Signup and view all the answers

Why do cash investments often fail to beat inflation?

Due to low interest rates Signup and view all the answers

What is the primary purpose of an investment risk ladder?

To rank investments by risk and potential return Signup and view all the answers

What is the primary factor that determines bond rates in organizations?

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

How are mutual funds valued?

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

What is a characteristic of exchange-traded funds (ETFs)?

They can track underlying indexes Signup and view all the answers

What is the primary benefit of investing in mutual funds?

Diversification into various stocks and securities Signup and view all the answers

What is the claim of shareholders on a company's assets in the event of liquidation?

A claim on the company's assets Signup and view all the answers