final 5 Flashcards
(30 cards)
If a person loses buying power because he or she invests money at a fixed interest rate,
the risk factor at fault is __________.
A. Inflation
B. Business failure
C. Interest rates
D. The market
A. Inflation
What strategy lowers the selling price of a stock and encourages more stock
purchasing?
A. Stock split
B. Dividend reinvestment
C. Dollar-Cost averaging
D. P/E analysis
stock split
What is an investing technique where an investor uses dividends previously earned on
stock to buy more shares of the stock?
A. Buy and hold
B. Short selling
C. Dividend reinvestment
D. Direct investment
C. Dividend reinvestment
Use the Rule of 72 to calculate the number of years it will take to double your money if
you earn 8% on your investment.
A. 6 years
B. 8 years
C. 10 years
D. There is not enough information given to solve the problem.
8 years
You bought 10 shares of stock in Streaming Video Co. for $45 per share. Two months
later you sold the 10 shares of stock for $80 per share. What was your profit or loss on
Streaming Video Co. stock? (Assume that Streaming Video Co. didn’t pay a dividend and
that you didn’t incur any trading fees during that period.)
A. Loss of $800
B. Gain of $350
C. Loss of $450
D. Gain of $800
B. Gain of $350
Why is diversification a recommended investment strategy?
A. Investing in a diversified portfolio guarantees that you won’t lose money with
your investments.
B. If you tell your fund manager to use diversification, they’ll charge you lower
fees.
C. Diversifying your stock portfolio helps reduce risk.
D. If you diversify your portfolio, you are guaranteed to make a high return.
C. Diversifying your stock portfolio helps reduce risk.
Which of the following items is the most liquid?
A. House
B. Regular savings account
C. Certificate of Deposit
D. Automobile
B. Regular savings account
What is the first step you should take when planning for your retirement?
A. Figure out how much you need to save each month
B. Understand your investment options
C. Determine your retirement income needs
D. Pick the right savings tool
C. Determine your retirement income needs
Which investment pools the money of many investors to buy a large selection of
securities?
A. Preferred stocks
B. Savings bonds
C. Common stock
D. Mutual funds
Mutual funds
Which of the follwing investments puts the investor at the most risk of losing their
money?
A. A savings account
B. A money market account
C. A speculative investment
D. A conservative investment
C. A speculative investment
Why is compound interest more advantageous than simple interest?
A. Compound interest is harder to calculate, so those who use it earn higher
profits for their efforts.
B. Compound interest means you have a fund manager who is compounding your
returns without charging a fee.
C. Compound interest allows you to earn interest not only on the amount you
have saved, but also on the interest you’ve already earned.
D. Compound interest has lower fees than simple interest.
C. Compound interest allows you to earn interest not only on the amount you
have saved, but also on the interest you’ve already earned.
When investing in individual stocks, you should expect that…..
A. Stock prices for a company are relatively easy to predict.
B. Unforeseen company events can have a dramatic impact on the stock price of
a company’s stock.
C. You will have an informational edge by reading an online article about the
company.
D. The price of the stock is guaranteed to rise over time.
B. Unforeseen company events can have a dramatic impact on the stock price of
a company’s stock.
What is one question an investor should ask before investing in a Roth IRA or a
Traditional IRA?
A. Do I want to make a guaranteed return of 6% (Roth IRA) or 8% (Traditional
IRA)?
B. Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?
C. Do I want to pay taxes now (Traditional IRA) or later (Roth IRA)?
D. What type of investments do I want to make?
B. Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?
How does investing in the stock market differ from putting money in a savings account
at a bank?
A. Investing is always a less risky option than saving.
B. Investing is best for short-term situations like emergency funds; saving is best
for the long-term.
C. Investing typically earns between 1-2% per year, while saving generally earns
between 5-7% per year.
D. Investing allows you to accumulate wealth for retirement while saving is best
for short-term purchases or emergencies.
D. Investing allows you to accumulate wealth for retirement while saving is best
for short-term purchases or emergencies.
Which of the following is NOT a benefit of investing?
A. Increasing wealth
B. Beating inflation
C. Assuming financial risk
D. Taking advantage of tax benefits
C. Assuming financial risk
Before the Walker Corporation can issue stocks or bonds, it must register with what
organization?
A. The Walker Corporation Board of Directors
B. The Federal Reserve
C. The World Bank
D. The Securities and Exchange Commission (SEC)
D. The Securities and Exchange Commission (SEC)
Why is it important for you to understand YOUR risk tolerance before you start
investing?
A. It is recommended that people with a low risk tolerance shouldn’t invest at
all.
B. You must be willing to take a high amount of risk to begin investing.
C. If you have a high risk tolerance, you will likely pay less in investment fees.
D. You should create an investment portfolio that includes an amount of risk you
are comfortable with.
D. You should create an investment portfolio that includes an amount of risk you
are comfortable with.
What is a key difference between saving and investing?
A. Saving is for long-term goals; investing is for short-term goals.
B. Saving earns a much higher rate of return than investing your money.
C. Saving guarantees you will keep your intital deposit, while investing has no
guarantees.
D. Saving earns compound interest while investing earns simple interest.
C. Saving guarantees you will keep your intital deposit, while investing has no
guarantees.
Select the best definition of compound interest.
A. Compound interest is earning interest on the original amount you deposited.
B. Compound interest is earning interest on the original amount you deposited
plus any interest earned.
C. Compound interest is the amount of interest you are charged on your bank
account each month.
D. Compound interest is earning a fixed dollar amount on your bank account
each month.
B. Compound interest is earning interest on the original amount you deposited
plus any interest earned.
What is a stock?
A. A stock is a share of ownership in a company.
B. A stock is a lending investment to the government or a company.
C. A stock is an insured bank account with high risk.
D. A stock is a type of investment that uses money from investors to purchase
many different investment types.
A. A stock is a share of ownership in a company.
Which statement best describes the risk level of bonds?
A. Bonds are one of the riskiest investment types, but have the potential for a
high return.
B. Bonds have a moderate amount of risk, but are a riskier investment when
compared to stocks.
C. Bonds have a low to moderate amount of risk and are less risky than stocks.
D. Bonds have no risk.
C. Bonds have a low to moderate amount of risk and are less risky than stocks.
What is one way you can earn money by investing in bonds?
A. Through interest collected on your original investment.
B. Through dividends.
C. By selling your shares in the bond.
D. By purchasing a diversified bond type.
A. Through interest collected on your original investment.
Dahlia is 24 years old. She makes $85,000 per year, has a fully-funded Emergency
Fund, and extra income each month. What should be her investor risk level?
A. Conservative
B. Moderate
C. Aggressive
D. She should not invest.
C. Aggressive
Which statement best describes how diversification impacts risk when you are
investing?
A. Diversification means spreading your money across multiple investments,
which decreases risk.
B. Diversification means spreading your money across multiple investments,
which increases risk.
C. Diversification means putting all of your money into one investment, which
decreases risk.
D. Diversification means putting all of your money into one investment, which
increases risk.
Diversification means spreading your money across multiple investments,
which decreases risk.
