Unit 5 Pre-Test: Personal Financial Literacy

In economic terms, what is a stock?

• A share, or part ownership, of a company

• Pieces of paper that represent money

• Ownership of an entire company

• A place where individuals make money

Which of the following decisions will guarantee that a person will make money in the stock market?

• Buying the stock of a big company like Microsoft

• Nothing will guarantee making money in the stock market

• Buying the stock of a small company

• Purchasing stocks after the market has dropped for a week

What is compounding interest?

• Interest subtracted from the principle once or twice a year

• Interest gained on the principle and on interest already earned

• Adding 5% or more interest to an item purchased the previous year

• Liquefying your assets when a decision to move to another state is made

What is the greatest advantage to diversification in a stock portfolio?

• Investors get more annual reports

• Investors concentrate on one stock

• Investors reduce their risks

• Investors are guaranteed a profit

Which of the following is true of an investment in bonds?

• They are insured by the Federal Deposit Insurance Corporation

• They are held for three to six weeks, then sold

• They are a low risk investment

• They entitle the holder to a share of ownership in a corporation

Why is investing in a money market mutual fund a higher risk than investing in a certificate of deposit?

• It is not insured by the Federal Deposit Insurance Corporation

• It does not earn a fixed rate of interest

• It is not protected by the Securities and Exchange Commission

• It must be held for a preset amount of time

Which of the following described what you are doing when you invest in a mutual fund?

• Getting insurance from the Federal Deposit Insurance Corporation

• Getting a fixed return on your investment

• Investing money in insurance policies from the federal government

• Investing in a variety of stocks and bonds

In June, Leslie won a cash prize of $2,000. She plans to use this money to pay her tuition bill four months later in September. Why would Leslie put this money in a saving account instead of a 12 month (1 year) certificate of deposit?

• Get a higher rate of return

• Avoid paying property taxes

• Assure liquidity of the account

• Make a long term investment

Which of the following statements will help to maximize your stock investment?

• Buy low, sell low

• Buy high, sell low

• Buy low, sell high

• Buy high, sell high

Which of the following is the Rule of 72 intended to approximate?

• Net gain from a stock purchase

• Number of years to double an investment

• Risk profile of an investment

• Average rate of return on an investment