Investing Review

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

Mariam is young, willing to take a moderate amount of risk, but most importantly, wants an investment that is low-cost and diversified. Which is the best investment type for Mariam?

• A bond

• An individual stock

• A savings account

• An index fund