Understanding Stocks and Bonds

What type of security does purchasing stocks provide?

• A loan to the government

• Insurance on investment

• A fixed interest rate return

• A share of ownership in a specific company

Which of the following is NOT a benefit of owning stocks?

• Earning dividends

• Potential capital appreciation

• Guaranteed dividends

• Voting rights at shareholder meetings

What is the main difference between common and preferred stocks?

• Common stocks are sold on stock exchanges, preferred stocks are not

• Preferred stocks have voting rights

• Common stocks guarantee dividend payments

• Preferred stockholders receive dividends before common stockholders

Where are stocks sold?

• In private transactions

• On stock exchanges

• Directly from the issuing company

• At government auctions

What characterizes bonds compared to stocks?

• A form of lending to the issuer

• Higher risk and potential for growth

• Voting rights in the issuer's decisions

• Ownership in a company

Which type of bond is typically exempt from federal income taxes?

• Corporate bonds

• International bonds

• Municipal bonds

• Treasury bonds

What is the average annual return historically provided by the stock market according to the SEC?

• About 5%

• About 20%

• About 15%

• About 10%

Which investment option is considered safer?

• Cryptocurrencies

• Bonds

• Stocks

What is a key feature of preferred stocks?

• They receive dividends before common stocks

• They have voting rights

• They can be converted into bonds

• They offer high interest rates

Why might investors use bonds to balance their portfolio?

• To increase the portfolio's growth potential

• To protect against market volatility

• To avoid paying any taxes on investments

• To ensure voting rights in many companies