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Investing
Test Description: Making investments are good as long as you do your research and decide what is best for you.
Instructions: Answer all questions to get your test result.
1) 1. How does investing in the stock market differ from putting money in a savings account at a bank?
A
Investing typically earns between 1-2% while saving generally earns between 5-7%
B
Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies
C
Investing is best for short-term situations like emergency funds; saving is best for the long-term
D
Investing is always a less risky option than saving
2) 2. Why is compound interest more advantageous than simple interest?
A
Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already
B
Compound interest is harder to calculate, so those who use it earn higher profits for their efforts
C
Compound interest has lower fees than simple interest
D
Compound interest means you have a fund manager who is compounding your returns without charging a fee
3) When investing in individual stocks, you should expect that…
A
Stock prices for an individual stock will be more stable over the long-term than prices for a diversified index fund
B
Unforeseen company events can have a dramatic impact on the stock price for a company
C
Stock prices for a company are relatively easy to predict
D
You will have an informational edge by reading an article about a company you want to invest in
4) Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?
A
ETFs are traded once a day after the market closes.
B
An ETF is a single stock that you can buy in the stock market.
C
Actively managed ETFs have very low fees.
D
ETF prices can change throughout the day as they are exchanged on the market.
5) You bought 10 shares of stock in StreamingVideoCo 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 StreamingVideoCo stock? Assume that StreamingVideoCo didn't pay a dividend and
A
Gain of $350
B
Loss of $450
C
Gain of $800
D
Loss of $800
6) 8. Which of the statements below BEST describes the relationship between risk and return when considering an investment?
A
Investors do not expect to earn a return on a high risk investment but rather expect to lose their money
B
Investors expect to earn a higher return when they invest in a low risk asset, like a bond
C
Investors expect to earn a higher return when they invest in a high risk asset like stock in a small company
D
Investors expect to earn a lower return when they invest in a risky asset
7) 9. Why is diversification a recommended investment strategy?
A
If you tell your fund manager to use diversification, they’ll charge you lower fees.
B
If you diversify your portfolio, you are guaranteed to make a high return.
C
Investing in a diversified portfolio guarantees that you won’t lose money with your investments.
D
Diversifying your portfolio helps reduce risk.
8) 10. To open a brokerage account, you...
A
Must be able to transfer money from a checking or savings account.
B
Have to set an appointment with a brokerage firm as you can only open it in person.
C
Need proof that you have saved enough for an emergency fund first.
D
Need to be over the age of 21 or you need a parent to open it for you.
9) 12. An actively managed mutual fund…
A
Is managed by a fund manager who charges a fee
B
Always performs better than an index fund
C
Generally has lower fees than an index fund
D
Is a mix of two types of stocks and two types of bonds to diversify your portfolio
10) 13. How can someone make money from investing in a stock?
A
They receive dividends from the company they bought the stock of and/or they sell the stock at a higher price than what they
B
They sell the stock for a lower price than what they bought it for.
C
The stock loses value but the overall market experiences a positive return.
D
They sell the stock for the same price they bought it for.
11) 14. What is a brokerage account used for?
A
It’s an online portal that allows you to set up appointments with a fund manager.
B
It’s a special type of 401(k) plan that only some employers offer.
C
It’s the account you use to pay any taxes you owe on money you earned in your investments.
D
It’s a type of account used to buy and sell stocks, bonds, and mutual funds.
12) 15. Why is it important for you to understand YOUR risk tolerance before you start investing?
A
It’s recommended that people with a low risk tolerance shouldn’t invest at all.
B
It helps you decide if you want to participate in your employer’s match program for your 401(k).
C
If you have a high risk tolerance, you may be eligible for lower fees since you won’t care if your portfolio drastically lose
D
You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with.
13) 16. Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?
A
Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget.
B
Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest.
C
Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified.
D
Contribute the full $150/mo to the 401(k) because her company will match that full amount, doubling her investment every mo
14) 19. What is one question an investor should ask before investing in a Roth IRA or a Traditional IRA?
A
Do I want to pay taxes now (Traditional IRA) or later (Roth IRA)?
B
Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?
C
What type of investments do I want to make?
D
Do I want to make a guaranteed return of 6% or 8%?
15) 20. Nancy is a beginner level investor and is eager to get started. All of the following are things she should do EXCEPT...
A
Invest in a diversified portfolio
B
Invest in a low cost index fund
C
Pick individual stocks to see if she can beat the market
D
Estimate how much she will need for retirement to determine how much she needs to invest each month
16) 21. Elaine has been saving for a while and has $1,000 to invest. She would like this $1,000 to be the start of her retirement fund. What do you think is a good long-term investment strategy for Elaine?
A
Invest $1,000 in a bond index fund
B
Invest her $1,000 in a regular savings account earning 0.05% interest since it is a safe investment
C
Invest $800 in a stock index fund and $200 in a bond index fund
D
Invest in the stock of her favorite company
17) 23. Why are Index Funds such a popular investing option?
A
They are actively managed by a fund manager
B
They are managed by robo-advisors that guarantee higher returns than the overall stock market
C
They are a mix of 2-3 individual stocks that can help you diversify your portfolio
D
They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the
18) 24. What is a vesting period?
A
The period of time it takes for shares in an employer retirement plan to be owned fully by the employee
B
The period of time it takes a brokerage firm to complete a trade
C
The period of time you have been investing for
D
The period of time you hold a stock before selling it
*select an answer for all questions
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