U7 Investing Summative (Part 2)

Class:

• 2A
• 3A

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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

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

You bought 10 shares of stock in Streaming Video Co 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 Streaming Video Co stock? (Assume that Streaming Video Co didn't pay a dividend and that you didn't incur any trading fees during that period.)

• Loss of $800
• Profit of $350
• Loss of $450
• Profit of $800

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

• Investors expect to earn a lower return when they invest in a high risk asset
• Investors expect to earn a higher return when they invest in a low risk asset
• Investors expect to earn a higher return when they invest in a high risk asset
• Investors expect to earn zero return when investing in a low risk asset

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

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

• Dollar-cost averaging is a way to decrease your risk
• Dollar-cost averaging is a strategy that only expert investors use
• Dollar-cost averaging is advantageous because earnings are untaxed
• Dollar-cost averaging is offered exclusively through robo-advisors

How is a bond different from a stock?

• A bond is a loan you give to an organization while a stock is partial ownership in a company
• Bonds are typically riskier than stocks but have the potential to earn higher returns
• Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations
• Bonds are best for earning high returns while stocks are best for providing a stable source of income