Grade 7 Test Unit 6 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.

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 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

Which statement best describes how diversification impacts risk when you are investing?

• Diversification means spreading your money across multiple investments, which decreases risk.

• Diversification means spreading your money across multiple investments, which increases risk.

• Diversification means putting all of your money into one investment, which decreases risk.

• Diversification means putting all of your money into one investment, which increases risk.

Why is it important for you to understand YOUR risk tolerance before you start investing?

• It is recommended that people with a low risk tolerance shouldn't invest at all.

• If you have a high risk tolerance, you will likely pay less in investment fees.

• You should create an investment portfolio that includes an amount of risk you are comfortable with.

• You must be willing to take a high amount of risk to begin investing.

Where you can buy, sell, and trade stocks

• Insurance Company

• Stock Market

• Bank

• Credit Union

The profit of an investment

• Rate of Return

• Sale

• Loss

• Bond