Investing

Front

A key difference between saving and investing is

Back

Saving is for emergencies & goals, investing is for long-term wealth

Answer explanation

The correct choice highlights that saving is primarily for emergencies and short-term goals, while investing is aimed at building long-term wealth. This distinction is crucial for effective financial planning.

Front

Why is compound interest more beneficial than simple interest?

Back

Your money grows faster when it is compounded

Answer explanation

Compound interest is more beneficial because it allows your money to grow faster by earning interest on both the initial principal and the accumulated interest over time, unlike simple interest which only earns on the principal.

Front

Which would be considered the highest risk investment type? Options: Stock, Mutual Fund, Bond, Money Market Account

Back

Stock

Answer explanation

Stocks are considered the highest risk investment type due to their volatility and potential for significant price fluctuations, unlike bonds or money market accounts, which are generally more stable.

Front

The relationship between risk and return can be stated as

Back

Higher risk indicates higher return

Answer explanation

The correct choice, 'Higher risk indicates higher return', reflects the fundamental principle in finance that taking on more risk typically leads to the potential for greater returns, as investors seek compensation for increased uncertainty.

Front

If Jonathan is earning 2% on an investment and inflation is increasing by 3%, what is happening to his purchasing power?

Back

It's decreasing

Answer explanation

Jonathan's investment earns 2%, but inflation is at 3%. This means the cost of goods is rising faster than his earnings, leading to a decrease in purchasing power.

Front

How can you make money on stocks?

Back

Dividends

Answer explanation

You can make money on stocks through dividends, which are payments made to shareholders from a company's profits. This is a reliable income source, unlike buying high and selling low, which results in losses.

Front

If interest rates rise, what will typically happen to bond prices?

Back

Fall

Answer explanation

When interest rates rise, new bonds are issued at higher rates, making existing bonds with lower rates less attractive. As a result, the prices of existing bonds typically fall.

Front

A _____ is a loan given to an organization while a _______ is partial ownership in the company.

Back

bond, stock

Answer explanation

A bond is a loan given to an organization, representing debt, while a stock signifies partial ownership in the company. Therefore, the correct answer is bond for the loan and stock for ownership.

Front

What's the main difference between a Roth IRA and a Traditional IRA?

Back

Roth IRAs have you pay taxes upfront

Answer explanation

The main difference is that Roth IRAs require you to pay taxes on contributions upfront, while Traditional IRAs allow you to defer taxes until withdrawal. This affects how and when you pay taxes on your retirement savings.

Front

Andy bought 5 shares of a company for $10. Later, he sold all 5 shares for $15. What was his profit/loss on the stock?

Back

Profit of $25

Answer explanation

Andy bought 5 shares for $10, totaling $50. He sold them for $15 each, totaling $75. His profit is $75 - $50 = $25. Therefore, the correct answer is Profit of $25.