Personal Finance (Chapter 7)

How does investing in the stock market differ from putting money in a savings account at a bank?

• Investing is less risky

• Historically, savings accounts have enjoyed higher returns than investing

• You cannot lose money when investing but you can lose money when saving

• If you need to access your money within the next few months, putting money in savings account is a better option

You deposit $1,000 into a 2 year Certificate of Deposit (CD), which earns 2% interest per year. During those 2 years, the inflation rate runs 3% per year. Which statement is accurate regarding what you can purchase at the end of the CD's term?

• You have increased purchasing power because your interest rate is greater than inflation

• You have increased purchasing power because inflation is greater than the interest rate

• Your purchasing power remains the same

• You have less purchasing power because the inflation rate is greater than the interest you are earning

Which type of bond is generally considered "risk-free" since the issuer of the bond has the ability to print money to meet their obligations?

• Corporate Bond

• Municipal Bond

• U.S. Treasury Bond

• IPO Bond

You are interested in investing in a stock. Check each of the following ways you CAN profit from your investment.

• Interest income

• Principal

• Dividends

• Selling the stock at a higher price than you paid for it

You bought 10 shares of stock in StreamingVideoCo for $45 per share. Two months later you sold the ten shares of stock for $80 per share. What was your profit or loss on StreamingVideoCo stock? Assume that StreamingVideoCo didn't pay a dividend during that period.

• Loss of $800

• Gain of $350

• Loss of $450

• Gain of $800

Which of the statements below BEST describes the relationship between risk and return when considering an investment?

• Investors expect to earn a lower return when they invest in a risky asset like a start-up company

• Investors expect to earn a higher return when they invest in a low risk asset like a savings account

• Investors expect to earn a lower return when they invest in a low risk asset like a U.S. Treasury Bond

• Investors do not expect to earn a return on a high risk investment

Investing in a diversified portfolio of stocks guarantees that you won't lose money with your investments.

• True

• False

Which of the following investment choices best reflects a diversified portfolio?

• Investing in one large-cap restaurant stock

• Investing in a mutual fund that invests in 30-40 oil and gas companies

• Investing in an S&P500 index fund

• Investing in 10-20 companies in the technology industry

Which investment vehicle represents an ownership interest in a company?

• Stock

• Corporate Bond

• Savings account

• U.S. Treasury Bond

WHAT TYPE OF INVESTMENT AM I? I am a type of investment managed by an investment professional seeking to "beat the market" through good stock picking. I typically carry higher fees which may make it difficult for me to beat the market.

• Actively managed mutual fund

• Passively managed mutual fund

• Index fund

• Money market account