Chapter 13 Review: Investing Fundamentals

The first step to creating an investment plan is to establish investment goals.

• True

• False

An emergency fund is an amount of money that can be obtained quickly in case of immediate need.

• True

• False

The rate of return on an investment has no effect on an investment program.

• True

• False

There is no relationship between risk and safety.

• True

• False

Liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.

• True

• False

Once you have developed an asset allocation plan for your investments, you never need to adjust it.

• True

• False

A short-term investment goal is one that will be accomplished within a period of:

• one year or less

• two to five years

• three years or less

• more than five years

A good rule of thumb is to limit consumer credit payments to no more than ________ percent of your net (after tax) income.

• 20

• 30

• 40

• 50

An emergency fund should be deposited in a:

• savings account or other near-cash investments.

• six-month certificate of deposit.

• checking account.

• safe place at home.

An example of ________ risk occurs when the financial return on an investment does not keep up with prices that are increasing in the overall economy.

• market

• interest

• inflation

• current