Practice Test Day 1

1. How can compounding increase your investment’s growth?

• 1. By reducing the risk of investing

• 1. By reinvesting your earnings to gain additional returns

• 1. By increasing the impact of inflation over time

• By investing in different assets to diversify your portfolio

2. What statement accurately describes the historical trends of the stock market since its inception?

• 1. The value has increased constantly and slowly since the stock market opened

• 1. The value has gone up and down a lot, but overall has increased over time

• 1. The value increased a lot in its early days, but has since stayed relatively constant

• 1. The value has gone up and down a lot, but overall has decreased over time

3. If the one-day performance of Super Duper Stock shows a -11.4% return, what can you assume about the longer-term historical performance of their stock?

• 1. Super Duper has likely been struggling financially for months or even years

• 1. Share prices for Super Duper fluctuate regularly and and only high risk investors should have this company anywhere in their portfolio

• 1. One-day returns are far too short a time frame to make any assessment about past or future performance of Super Duper

• 1. Historically, Super Duper must have been much more successful or their shares wouldn’t even be eligible to trade on the stock market

4. If you want to maximize your investment returns, which of these suggestions would be the WORST advice?

• 1. Make frequent trades and withdraw your short-term earnings

• 1. Start to invest early for the long-term

• 1. Reinvest earnings

• 1. Use diversification and allocation to minimize risk

5. How does a bond differ from a stock in your investment portfolio?

• 1. Bonds typically have higher returns and lower risk than stocks

• 1. Bonds typically have higher returns and higher risk than stocks

• 1. Bonds typically have lower returns and higher risk than stocks

• 1. Bonds typically have lower returns and lower risk than stocks

6. When it comes to investing in the stock market, which of the following statements is TRUE?

• 1. There is little to no risk to investing in the stock market

• 1. It is easy to make money by timing the market to buy/sell stocks

• 1. The whole stock market value can go up even if some stock values go down

• 1. It is better to wait until retirement age to begin investing in the stock market

8. What does it mean to have an investing portfolio that is diversified?

• 1. Using a variety of sources to do research on what stocks to buy

• 1. Making sure that your investments are different from those of your friends and family

• 1. Investing in different assets to spread out the risk to different markets

• 1. Never buying the same stock more than once

9. What is a dividend?

• 1. A dividend is a payment a company makes periodically to owners of its stock

• 1. A dividend is the difference between the purchase price and selling price of a stock

• 1. A dividend is the tax you pay in order to buy and sell stocks

• 1. A dividend is a payment you make to keep a stock on loan from a company

10. Which of the following is TRUE about investing?

• 1. It is meant for short-term needs like your emergency fund, not saving for retirement

• 1. It guarantees a high rate of return over a short period of time

• 1. It can help you grow your money through the power of compounding

• 1. It involves little risk because your returns are insured up to $250,000

11. Which of these terms regarding bonds is NOT correct?

• 1. Face Value: the value of the bond that will be paid out at the end of the bond’s life

• 1. Coupon Rate: the annual interest rate paid to the holder of the bond

• 1. Maturity: The recommended age a buyer should be when they purchase a given bond

• 1. Price: the cost of the bond if you were to purchase it in the market at that moment