Investing Unit Test

1. All of the following are reasons to invest, EXCEPT…

• To minimize the impact on inflation, which causes you to lose purchasing power
• To earn a consistent rate of return with lower risk than typical savings accounts
• To build wealth by reinvesting your returns and allowing them to compound
• To earn higher average rates of return than you would in a typical savings account

2.What is a stock?

• A measurement of a company’s profits
• An investment option that allows you to own a small piece of a company
• An annual report that includes details about a company’s leadership and earnings
• A low-risk savings option that can help you build an emergency fund

3. Which of the following most accurately describes what a bond is?

• A bond is a government loan made to an individual investor with the expectation that it will be paid back with interest
• A bond is an investment in which a corporation lends an individual investor money with the expectation that it will be paid back with interest
• A bond is a government loan made to a corporation with the expectation that it will be paid back with interest
• A bond is an investment in which an investor lends money to a corporation or government with the expectation that it will be paid back with interest

4. All of the following are strategies to reduce risk EXCEPT…

• Holding your investments for at least five years
• Making sure your investments are diversified
• Hiring an investment manager who you think can beat the market
• Investing small amounts of money over longer periods of time

5. What does it mean when someone says “Good investing is boring”?

• There should be little to no change in how your portfolio performs
• You should avoid talking to anyone about how your investments are performing
• You’re better off making long-term investments that don’t require day-to-day management
• You should avoid checking how your investments are doing for at least 10 years

6. In retirement, it’s common to rely on income from all of the following sources EXCEPT...

• Social Security
• Pension Income
• Government loan
• Investment Income

7. 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

8. Which of the following statements is TRUE about compound interest?

• Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts
• Compound interest means you have a fund manager who is compounding your returns without charging a fee
• Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
• Compound interest directly impacts how much you will be charged in fees

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

• Staying calm when the market is experiencing a downturn
• Buying stocks when prices are low and selling them when they’re high
• Exiting the market because that’s what everyone else is doing
• Investing in a diversified portfolio instead of trying to beat the market

10. 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