Stocks and Bonds Notes Quiz

How can you apply the rule of 72 to investing?

• It tells us how long it takes for an investment to double in value at a given rate of return

• It calculates the total value of an investment after 72 months

Why is a diversified portfolio desirable?

• It guarantees a fixed return on investment

• It decreases risk by investing money in a variety of investment tools

How is risk related to return in investments?

• There is no relationship between risk and return

• The higher the risk you take on, the higher the potential for return

What is a stock in the context of a company?

• B. A type of financial derivative

• C. A share of ownership in a company

What is another term used for a stockholder?

• B. Creditor

• C. Shareholder

Why do companies issue stock?

• To raise funds

• To reduce their market share

What might companies pay for with the funds raised from issuing stock?

• Research and development, hiring employees, and other business activities

• Luxury items for the office

What are dividends?

• Share of the profits paid to stockholders

• Monthly salaries paid to employees

What can vary when it comes to stock investments?

• The stock risk

• The time of year

What might happen to the price of a stock?

• It may only go up

• It may go up or down