Unit 6 Test Investing

What is a key difference between saving and investing?

• Saving is for long-term goals; investing is for short-term goals

• Saving earns a much higher rate of return than investing your money

• Saving guarantees you the money you put away while investing has no guarantees.

• Saving earns compound interest while investing earns simple interest

Select the best definition of compound interest.

• Compound interest is earning interest on the original amount you deposited.

• Compound interest is earning interest on the original amount you deposited plus any interest earned.

• Compound interest is the amount of interest you are charged on your bank account each month.

• Compound interest is earning a fixed dollar amount on your bank account each month.

What is a stock?

• A stock is a share of ownership in a company.

• A stock is a lending investment to the government or a company.

• A stock is an insured bank account with high risk.

• A stock is a type of investment that uses money from investors to purchase many different investment types.

What type of market is described by a receding economy and a decline in the stock market?

• Bear Market

• Bull Market

• Pig Market

• Sheep Market

Duncan plans to invest all of his money in individual stocks. Why is this likely a bad investment strategy?

• He will need a large amount of money to invest in individual stocks.

• Purchasing individual stocks has a very low amount of risk and a low return.

• He will need to open multiple brokerage accounts for each stock he purchases.

• Purchasing individual stocks has a high amount of risk and little diversification.

Which statement best describes the risk level of bonds?

• Bonds are one of the riskiest investment types, but have the potential for a high return.

• Bonds have a moderate amount of risk, but are a riskier investment when compared to stocks.

• Bonds have a low to moderate amount of risk and are less risky than stocks.

• Bonds have no risk.

What is one way you can earn money by investing in bonds?

• Through interest collected on your original investment.

• Through dividends.

• By selling your shares in the bond.

• By purchasing a diversified bond type.

Dahlia is 24 years old. She makes $85,000 per year, has a fully funded Emergency Fund, and extra income each month. What should be her investor risk level?

• Conservative

• Moderate

• Aggressive

• Average

Which of the following is a characteristic of an index fund?

• High Fees

• Insured

• Diversified

• Professionally managed

Your friend Jamal is 14 and wants to begin investing. He has taxable income from working at his uncle's sporting goods store. What type of account would you advise him to open?

• A traditional savings account

• A custodial brokerage account

• A custodial Roth IRA

• A 401k