Investing - Unit Test

Name

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

• Investing is always a less risky option than saving
• Investing is best for short-term situations like emergency funds; saving is best for the long-term
• Investing typically earns between 1-2% while saving generally earns between 5-7%
• Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies

What is the primary difference between traders and investors?

• Traders typically hold assets for the long term, while investors aim for short-term gains.
• Traders focus on capital preservation, while investors prioritize capital growth.
• Traders engage in frequent buying and selling of assets, while investors generally buy and hold assets for an extended period.
• Traders primarily invest in stocks, while investors primarily invest in real estate.

Why is investing considered better than putting your money in a savings account?

• Investments offer higher potential returns compared to the low interest rates of savings accounts.
• Savings accounts provide tax advantages that investments do not offer.
• Investments guarantee the safety of your principal amount, whereas savings accounts involve higher risks.
• Savings accounts offer more liquidity and flexibility than investments, allowing easier access to funds when needed

How can investors make money from stocks?

• By earning interest on their stock holdings.
• By receiving dividends and selling when the price of the stock is high.
• By participating in stock trading competitions sponsored by Lawson Inc.
• By borrowing money to invest in stocks to try and beat the market.

Nancy is new to investing and is eager to get started. All of the following are things she should do EXCEPT...

• Invest in a low cost index fund
• Estimate how much she will need for retirement to determine how much she needs to invest each month
• Pick individual stocks to see if she can beat the market
• Invest in a diversified portfolio

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 high risk asset
• Investors expect to earn a higher return when they invest in a low risk asset
• Investors expect to earn a higher return when they invest in a high risk asset
• Investors expect to earn zero return when investing in a low risk asset

Why is diversification a recommended investment strategy?

• Investing in a diversified portfolio guarantees that you won’t lose money with your investments
• If you tell your fund manager to use diversification, they’ll charge you lower fees
• Diversifying your portfolio helps reduce risk
• If you diversify your portfolio, you will definitely earn a high return

How is a bond different from a stock?

• A bond is a loan you give to an organization while a stock is partial ownership in a company
• Bonds are typically riskier than stocks but have the potential to earn higher returns
• Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations
• Bonds are best for earning high returns while stocks are best for providing a stable source of income

How can someone make money from investing in a stock?

• They sell the stock for a lower price than what they bought it for
• They receive dividends or they sell the stock at a higher price than what they bought it for
• The stock loses value but the overall market experiences a positive return
• They sell the stock for the same price they bought it for