Investing Question Preview (ID: 58085)


Making Investments Are Good As Long As You Do Your Research And Decide What Is Best For You. TEACHERS: click here for quick copy question ID numbers.

1. 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% while saving generally earns between 5-7%
d) Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies

2. 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
d) Compound interest has lower fees than simple interest

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 for a company
c) You will have an informational edge by reading an article about a company you want to invest in
d) Stock prices for an individual stock will be more stable over the long-term than prices for a diversified index fund

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.

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) Loss of $800
b) Gain of $350
c) Loss of $450
d) Gain of $800

8. Which of the statements below BEST describes the relationship between risk and return when considering an investment?
a) Investors expect to earn a lower return when they invest in a risky asset
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 do not expect to earn a return on a high risk investment but rather expect to lose their money

9. 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 portfolio helps reduce risk.
d) If you diversify your portfolio, you are guaranteed to make a high return.

10. To open a brokerage account, you...
a) Need to be over the age of 21 or you need a parent to open it for you.
b) Have to set an appointment with a brokerage firm as you can only open it in person.
c) Must be able to transfer money from a checking or savings account.
d) Need proof that you have saved enough for an emergency fund first.

12. An actively managed mutual fund…
a) Generally has lower fees than an index fund
b) Is managed by a fund manager who charges a fee
c) Always performs better than an index fund
d) Is a mix of two types of stocks and two types of bonds to diversify your portfolio

13. How can someone make money from investing in a stock?
a) They sell the stock for a lower price than what they bought it for.
b) They receive dividends from the company they bought the stock of and/or they sell the stock at a higher price than what they
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.

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 the account you use to pay any taxes you owe on money you earned in your investments.
c) It’s a type of account used to buy and sell stocks, bonds, and mutual funds.
d) It’s a special type of 401(k) plan that only some employers offer.

15. Why is it important for you to understand YOUR risk tolerance before you start investing?
a) It helps you decide if you want to participate in your employer’s match program for your 401(k).
b) It’s recommended that people with a low risk tolerance shouldn’t invest at all.
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.

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) Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified.
c) Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest.
d) Contribute the full $150/mo to the 401(k) because her company will match that full amount, doubling her investment every mo

19. 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% or 8%?
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?

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 low cost index fund
b) Estimate how much she will need for retirement to determine how much she needs to invest each month
c) Pick individual stocks to see if she can beat the market
d) Invest in a diversified portfolio

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 $800 in a stock index fund and $200 in a bond index fund
b) Invest $1,000 in a bond index fund
c) Invest in the stock of her favorite company
d) Invest her $1,000 in a regular savings account earning 0.05% interest since it is a safe investment

23. Why are Index Funds such a popular investing option?
a) They are a mix of 2-3 individual stocks that can help you diversify your portfolio
b) They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the
c) They are actively managed by a fund manager
d) They are managed by robo-advisors that guarantee higher returns than the overall stock market

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 you have been investing for
c) The period of time you hold a stock before selling it
d) The period of time it takes a brokerage firm to complete a trade

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