Chapter 7 Review Game: Investing

Front

What is compound interest?

Back

Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods. This means you earn interest on both your original investment and the interest that has been added to it.

Front

Why is compound interest more advantageous than simple interest?

Back

In compound interest, you earn interest on not only your principal but also on the interest you’ve already made, leading to potentially higher returns over time.

Front

What are stock indexes?

Back

Stock indexes are statistical measures that track the performance of a group of stocks, providing a snapshot of market trends.

Front

What is the purpose of stock indexes for investors?

Back

Stock brokers and individual investors can use the indexes to get a sense of how the market is performing.

Front

What are dividends?

Back

Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits.

Front

Can you earn dividends if the stock value decreases?

Back

Yes, it is possible to earn dividends on your investment even if the value of the stock has decreased from when you first bought it.

Front

What is a passively managed index fund?

Back

A passively managed index fund is a type of mutual fund or exchange-traded fund that aims to replicate the performance of a specific index by holding the same stocks in the same proportions.

Front

What is the best investment advice for a recent graduate?

Back

She should start investing immediately in a passively managed index fund and add to her investments on a regular basis.

Front

What factors determine your risk tolerance for investing?

Back

Your risk tolerance for investing should be determined by your time horizon and when you will need access to the money.

Front

What is the difference between stocks and bonds?

Back

Stocks represent ownership in a company, while bonds are loans made to a company or government that pay interest over time.