Investing Unit Test

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

• Investing in the stock market guarantees a fixed return on investment, while putting money in a savings account at a bank does not.
• Investing in the stock market is a low-risk investment, while putting money in a savings account at a bank is a high-risk investment.
• Investing in the stock market involves buying shares of companies and hoping for a return on investment, while putting money in a savings account at a bank earns interest over time.

Which of the following statements is TRUE about compound interest?

• Compound interest is only calculated on the accumulated interest from previous periods.
• Compound interest is calculated on both the initial principal and the accumulated interest from previous periods.
• Compound interest is not affected by the length of the compounding period.

What kinds of behaviors can PREVENT people from making smart investing decisions?

• Emotional decision-making, following the crowd, lack of research or knowledge, impatience, and overconfidence.
• Rational decision-making, following the crowd, lack of research or knowledge, impatience, and overconfidence.
• Emotional decision-making, going against the crowd, lack of research or knowledge, impatience, and overconfidence.

1. Daniel has saved $2,000 in a savings account that earns 0.5% interest annually. What will most likely happen to the purchasing power of his savings over time? 

• The purchasing power of his savings will most likely increase over time.
• The purchasing power of his savings will most likely decrease over time.
• The purchasing power of his savings will remain the same over time.

1. Which of the following accurately describes a difference between an individual bond compared to a bond fund? 

• 1. A bond pays you dividends while a bond fund pays you regular interest

• 1. A bond is issued by a company while bond funds only invest in government bonds

• 1. A bond is considered to be a less diversified investment than a bond fund

6. Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?

• ETFs are only available to institutional investors.
• ETFs are not subject to market volatility.
• ETFs are traded on stock exchanges.

7. You bought 10 shares of stock in StreamingVideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. What was your profit or loss on StreamingVideoCo stock? (Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.)

• $450
• $350
• $550

8. Which of the statements below BEST describes the relationship between risk and return when considering an investment?

• Risk and return are negatively correlated.
• Risk and return are positively correlated.
• Risk and return are unrelated.

9. Why is diversification a recommended investment strategy?

• 1. Diversifying your portfolio helps reduce risk

• To maximize returns and achieve higher profits.
• To concentrate investments in a single asset for higher potential gains.

10. Which of the following is a characteristic of dollar-cost averaging?

• 1. Dollar-cost averaging is a way to decrease your risk

• 2. Dollar-cost averaging is a strategy that only expert investors use

• 1. Dollar-cost averaging is offered exclusively through robo-advisors