Investing Unit Test

Which of the following accurately describes a difference between an individual bond compared to a bond fund?

• A bond guarantees you a higher rate of return than a bond fund

• A bond is issued by a company while bond funds only invest in government bonds

• A bond is considered to be a less diversified investment than a bond fund

Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?

• An ETF is a single stock that you can buy in the stock market

• Actively managed ETFs have very low fees

• ETF prices can change throughout the day as they are exchanged on the market

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

• a. Investors expect to earn a lower return when they invest in a high risk asset

• b. Investors expect to earn a higher return when they invest in a low risk asset

• c. Investors expect to earn a higher return when they invest in a high 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

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

How can someone make money from investing in a stock?

• They receive dividends or they sell the stock at a higher price than what they bought it for

• The stock loses value but the overall market experiences a positive return

• They sell the stock for the same price they bought it for

What is a brokerage account used for?

• It’s an online portal that allows you to set up appointments with a fund manager

• It’s the account you use to pay any taxes you owe on money you earned on your investments

• It’s a type of account used to buy and sell stocks, bonds, and funds

Why might a target date fund (TDF) be a good option for Sam?

• A TDF buys a single stock and bond so that beginner investors can practice day trading

• A TDF is insured by the federal government, so Sam's money is protected even if the fund performs poorly

• A TDF will automatically adjust his asset allocation based on the retirement year he has chosen

What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?

• Do I want to make a guaranteed return of 6% or 8%?

• Do I want to pay taxes now or later?

• Do I want to take advantage of my employer’s matching contribution?

You buy a bond with a fixed coupon rate of 5%. A year later, similar bonds that are issued have a coupon rate of 3%. Which of the following is TRUE?

• The price of your bond will increase

• The demand for your bond will decrease

• The price of your bond will stay the same