Unit 6 Test - Investing

1) What is a key difference between saving and investing?

• Saving is for long-term goals; investing is for short-term goals
• Saving earns a much higher rate of return than investing your money
• Saving guarantees you the money you put away while investing has no guarantees.
• Saving earns compound interest while investing earns simple interest

2) Select the best definition of compound interest.

• Compound interest is earning interest on the original amount you deposited.
• Compound interest is earning interest on the original amount you deposited plus any interest earned.
• Compound interest is the amount of interest you are charged on your bank account each month.
• Compound interest is earning a fixed dollar amount on your bank account each month.

3) What is a stock?

• A stock is a share of ownership in a company.
• A stock is a lending investment to the government or a company.
• A stock is an insured bank account with high risk.
• A stock is a type of investment that uses money from investors to purchase many different investment types.

4) What type of market is described by a receding economy and a decline in the stock market?

• Bear Market
• Bull Market
• Pig Market
• Sheep Market

5) What is the current trading price of McDonald's stock?

• $188.50
• $186.75
• $24.43
• $1.75

6) Duncan plans to invest all of his money in individual stocks. Why is this likely a bad investment strategy?

• He will need a large amount of money to invest in individual stocks.
• Purchasing individual stocks has a very low amount of risk and a low return.
• He will need to open multiple brokerage accounts for each stock he purchases.
• Purchasing individual stocks has a high amount of risk and little diversification.

7) Which statement best describes the risk level of bonds?

• Bonds are one of the riskiest investment types, but have the potential for a high return.
• Bonds have a moderate amount of risk, but are a riskier investment when compared to stocks.
• Bonds have a low to moderate amount of risk and are less risky than stocks.
• Bonds have no risk.

8) What is one way you can earn money by investing in bonds?

• Through interest collected on your original investment.
• Through dividends.
• By selling your shares in the bond.
• By purchasing a diversified bond type.

9) Dahlia is 24 years old. She makes $85,000 per year, has a fully funded Emergency Fund, and extra income each month. What should be her investor risk level?

• Conservative
• Moderate
• Agressive
• Average

10) Which of the following is a characteristic of an index fund?

• High fees
• Insured
• Diversified
• Professionally managed