CHAPTER 13 - INVESTMENT
FUNDAMENTALS QUESTIONS WITH
CORRECT ANSWERS 2026
Total Return - correct answer-income an investment generatesKfrom current income and capital gains
Current Income - correct answer-
money received while you own an investment; usually received regularly as interest, rent, or dividends
Dividend - correct answer-a portion of a company's earnings that is paid to stockholders
Capital Gains - correct answer-
increase in the value of an initial investment (less costs) realized upon the sale of the investment
Capital LossK-Kcorrect answer-decrease in paper value of an initial investment; only realized if sold
Rate of Return/Yield - correct answer-
total return on an investment expressed as a percentage of its price
Seculative Risk - correct answer-
involves the potential for either gain or loss; equity investments might do either
Investment Risk - correct answer-
the possibility that the yield on an investment will deviate from its expected return
T-Bill - correct answer-a government IOU of less than one year
Risk Premium (Equity RiskKPremium) - correct answer-
the difference between a riskier investment's expected return and the totally safe return on the T-bill
, Risk Tolerance -Kcorrect answer-
an investor's willingness to weather changes in the value of your investments, that is, to weather invest
ment risk
Investment Philosophy - correct answer-
Investor's general approach to tolerance for risk in investments, whether it is conservative, moderate, or
aggressive, given the investor's financial goals
Conservative Investment Philosophy (Risk Aversion) - correct answer-
investors with this philosophy accept very little risk and are generally rewarded with relatively low rates
of return for seeking the twin goals of a moderate amount of current income and preservation of capital
Moderate Investment Philosophy (Risk Indifference) - correct answer-
investors with this philosophy accept some risk as they seek capital gains through slow and steady growt
h in investment value along with current income
Aggressive Investment Philosophy (Risk Seeker) - correct answer-
investors with this philosophy primarily seek capital gains, often with a short time horizon
Debts - correct answer-lending investments that typically offer both a fixed maturity and a fixed income
Fixed Maturity - correct answer-
specific date on which a borrower agrees to repay the principal to the investor
Fixed Income - correct answer-
specific rate of return that a borrower agrees to pay the investor for use of the principal (initial investme
nt)
Equities - correct answer-
ownership equities such as common or preferred stocks, equity mutual funds, real estate, and so on that
focus on capital gains more than on income
Real Rate of Return - correct answer-
return on an investment after subtracting the effects of inflation and income taxes
FUNDAMENTALS QUESTIONS WITH
CORRECT ANSWERS 2026
Total Return - correct answer-income an investment generatesKfrom current income and capital gains
Current Income - correct answer-
money received while you own an investment; usually received regularly as interest, rent, or dividends
Dividend - correct answer-a portion of a company's earnings that is paid to stockholders
Capital Gains - correct answer-
increase in the value of an initial investment (less costs) realized upon the sale of the investment
Capital LossK-Kcorrect answer-decrease in paper value of an initial investment; only realized if sold
Rate of Return/Yield - correct answer-
total return on an investment expressed as a percentage of its price
Seculative Risk - correct answer-
involves the potential for either gain or loss; equity investments might do either
Investment Risk - correct answer-
the possibility that the yield on an investment will deviate from its expected return
T-Bill - correct answer-a government IOU of less than one year
Risk Premium (Equity RiskKPremium) - correct answer-
the difference between a riskier investment's expected return and the totally safe return on the T-bill
, Risk Tolerance -Kcorrect answer-
an investor's willingness to weather changes in the value of your investments, that is, to weather invest
ment risk
Investment Philosophy - correct answer-
Investor's general approach to tolerance for risk in investments, whether it is conservative, moderate, or
aggressive, given the investor's financial goals
Conservative Investment Philosophy (Risk Aversion) - correct answer-
investors with this philosophy accept very little risk and are generally rewarded with relatively low rates
of return for seeking the twin goals of a moderate amount of current income and preservation of capital
Moderate Investment Philosophy (Risk Indifference) - correct answer-
investors with this philosophy accept some risk as they seek capital gains through slow and steady growt
h in investment value along with current income
Aggressive Investment Philosophy (Risk Seeker) - correct answer-
investors with this philosophy primarily seek capital gains, often with a short time horizon
Debts - correct answer-lending investments that typically offer both a fixed maturity and a fixed income
Fixed Maturity - correct answer-
specific date on which a borrower agrees to repay the principal to the investor
Fixed Income - correct answer-
specific rate of return that a borrower agrees to pay the investor for use of the principal (initial investme
nt)
Equities - correct answer-
ownership equities such as common or preferred stocks, equity mutual funds, real estate, and so on that
focus on capital gains more than on income
Real Rate of Return - correct answer-
return on an investment after subtracting the effects of inflation and income taxes
