Saving and Investing Practice

The most common relationship between risk and return in investing can be stated as:

• higher risk indicates lower return
• higher risk indicates higher return
• lower risk indicates higher return
• No relationship exists between risk and return

Elliot’s stock broker is suggesting that he consider investing in a diversified portfolio. A diversified portfolio is desirable because it:

• increases the risk/return ratio 
• limits investors choices to only one or two investment tools   
• indicates an investor is a good predictor of the return an investment will have
• decreases risk by investing money in a variety of investment tools

Which of the following is not true in regards to investing in stock?

• A stockholder owns a part of a company.
• Depending upon the current market price, stockholders may pay different prices for the same stock.
• A stockholder may or may not receive a dividend.
• A stockholder will always receive a profit when the stock is sold.

Conner wants to purchase stocks with the money he received from his tax return. Who would he contact to make the transaction?

• A brokerage firm
• The New York Stock Exchange
• a real estate agent
• Conner should complete this transaction on his own

Which statement is TRUE of mutual funds?

• Mutual funds are speculative investments
• Mutual funds are diversified investments
• Mutual funds are a form of real estate investment
• Mutual funds are superior purchasing to a single stock

A bond is:

• A type of debt that a company issues to investors for a specified period of time
• A share of ownership in a company.
• A type of investment that is only offered by depository institutions.
• A type of investment that has the potential for significant fluctuations over a short period of time.

It is best to have the rate of return on an investment  than the rate of inflation.

• Lower, in order to minimize taxes
• Lower, in order to minimize risk
• Higher, to maintain purchasing power
• Higher, to minimize risk

Which of the following statements is true in regards to paying taxes on investments?

• Since investments are considered unearned income, taxes do not have to be paid on earnings.
• Taxes are often owed on profits generated from investments.
• Taxes only have to be paid on employer‐sponsored investment accounts.
• Taxes are always paid on investments either when the money is placed in the investment or removed from the investment.

Which of the following has a —high degree of risk, no diversification

• T-bills
• Bonds
• Mutual funds
• Stocks

—Buying little pieces of a whole lot of different companies

• Stocks
• Bonds 
• Mutual funds
• T-bills