Basics Beginner: Investments

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1.
What results when you sell an investment for more than you paid for it?
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A capital gain. It can be thought of as a gain on the capital invested.
2.
Compound interest is interest that is calculated only on the principal you invest.
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False. Compound interest is interest that is calculated on the principal you invest plus any interest you earn.
3.
When a bond matures, what happens to it?
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The money gets paid back to you. When a bond matures (that is, when its term ends), the money in it gets paid back to you, along with any interest that is yet due.
4.
What is the most commonly used type of cash investment?
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Savings account. A savings account is made up of cash you deposit, but unlike the cash in your pocket, it pays some interest to you.
5.
Asset allocation is associated with determining how many stocks you will hold in your stock portfolio.
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False. Asset allocation is associated with determining how much you will allocate to an asset class like stocks, bonds, and cash. The number and types of stocks you have in your portfolio has to do with diversification.
6.
What is a mutual fund?
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A ready-made portfolio of securities investments. Mutual funds are convenient because the investments in them have already been selected. You and many others invest your money into the fund and thereby participate in the gains and losses of the fund's investments.