Why is diversification a recommended investment strategy?

Diversifying your portfolio helps reduce risk

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

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 receive dividends or they sell the stock at a higher price than what they bought it for

They sell the stock for a lower 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

What is a brokerage account used for?

It’s a type of account used to buy and sell stocks, bonds, and funds

It’s an online portal that allows you to set up appointments with a fund manager

It’s the account you use to pay any taxes you owe on money you earned on your investments

It’s a special type of 401(k) plan that only some employers offer

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

You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with

It helps you decide if you want to participate in your employer’s match program for your 401(k)

It’s recommended that people with a low risk tolerance shouldn’t invest at all

If you have a high risk tolerance, you may be eligible for lower fees since you won’t care if your portfolio drastically loses value

As a shareholder in a public company, what are the benefits available to you?

You may receive dividends from the company, if the company pays them, and you have ownership of a portion of the company

You must receive dividends from the company (all companies must pay them) and you can select members of the management team (e.g., the Chief Executive Officer (CEO))

You can select members of the management team [e.g., the Chief Executive Officer (CEO)] and vote for members of the Board of Directors

You have ownership of a portion of the company and receive coupon payments from the issuer

As an investor, what are the risks involved with buying only one company’s stock?

Limited diversification can expose you to high risk if the company performs poorly.

Guaranteed high returns due to undivided focus on a single stock.

Lower brokerage fees and transaction costs.

Enhanced protection against market fluctuations from the FDIC.

What is the difference between a BULL and a BEAR market?

A BULL market is when the stock market is rising and the economy is booming, while a BEAR market describes a declining market and a receding economy.

A BULL market is when there is a decline in the stock market and the economy is receding, while a BEAR market describes a rising market and a booming economy.

Why is it challenging to match your investing decisions with how the stock market is performing?

It is hard to predict trends, and trends can only be identified once they’ve already happened

The stock market is typically in a BEAR market for a specific period of time

You have to invest large amounts of money to have your decisions match the performance of the stock market

The stock market is typically in a BULL market for a specific period of time

What is default risk when talking about bonds?

The risk that a bond issuer may fail to make scheduled interest payments or return the principal amount at maturity.

The risk associated with changes in market interest rates affecting the bond's value.

The risk of losing money due to fluctuations in the stock market.

The risk that a bond will be called away by the issuer before it matures.

What is a coupon payment when talking about bonds?

A periodic interest payment made by the bond issuer to the bondholder.

A voucher that bondholders can redeem for cash.

A bonus payment given to investors who purchase bonds at a premium.

A one-time payment made to bondholders when the bond matures.

What are the 3 strategies used to manage risk?

Time, Diversification, and Investing over time.

Diversification, speculation, and timing.

Hedge-Funds, insurance, and risk.

Savings, budgeting, and investing.

Investing - Unit Test

Authored by Jillian Lawson

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OPEN ENDED QUESTION

30 sec • Ungraded

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

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