Investments 101: Fun with Finance!

What is a Certificate of Deposit (CD)?

• A type of investment where you can withdraw money anytime without penalty.

• A savings account with a fixed interest rate and fixed date of withdrawal.

• A type of investment that involves buying and selling real estate properties.

• A magical piece of paper that doubles your money overnight.

Answer explanation

A Certificate of Deposit (CD) is a savings account that offers a fixed interest rate and requires you to keep your money deposited until a specified maturity date, making the second option the correct choice.

What does REIT stand for?

• Real Estate Investment Trust

• Really Expensive Investment Tactic

• Random Equity Investment Tool

• Rare Earth Investment Treasure

Answer explanation

REIT stands for Real Estate Investment Trust, which is a company that owns, operates, or finances income-producing real estate. The other options do not accurately represent this financial term.

Which of the following is true about ETFs (Exchange-Traded Funds)?

• They can only be traded once a year.

• They are traded on stock exchanges, similar to stocks.

• They are a type of bond.

• They are a secret society of investors.

Answer explanation

ETFs are traded on stock exchanges like stocks, allowing for real-time buying and selling throughout the trading day. The other options are incorrect as they misrepresent the nature of ETFs.

What is a mutual fund?

• A fund where investors pool their money to buy a diversified portfolio of stocks and bonds.

• A fund that only invests in mutual friendships.

• A fund that guarantees a 100% return on investment.

• A fund that invests exclusively in mutual funds.

Answer explanation

A mutual fund is a collective investment vehicle where multiple investors contribute money to purchase a diversified portfolio of stocks and bonds, making it a practical way to invest in various assets.

What is a bond in the context of investments?

• A promise to pay back borrowed money with interest.

• A type of stock that never loses value.

• A friendship bracelet for investors.

• A magical document that makes you rich instantly.

Answer explanation

A bond is essentially a loan made by an investor to a borrower, typically a corporation or government, where the borrower promises to pay back the borrowed amount with interest over a specified period.

What is a stock?

• A type of bond that pays dividends.

• A share in the ownership of a company.

• A type of investment that only grows in the winter.

• A secret recipe for financial success.

Answer explanation

A stock represents a share in the ownership of a company, giving shareholders a claim on assets and earnings. The other options incorrectly describe stocks or are irrelevant.

What is an IRA?

• An Individual Retirement Account.

• An International Rescue Association.

• An Instant Riches Account.

• An Imaginary Retirement Asset.

Answer explanation

An IRA, or Individual Retirement Account, is a tax-advantaged savings account designed to help individuals save for retirement. The other options do not accurately describe this financial tool.

What is the main difference between a Roth IRA and a traditional IRA?

• Roth IRAs are only for people named Roth.

• Roth IRAs are funded with after-tax dollars, and withdrawals are tax-free.

• Roth IRAs require you to invest in real estate.

• Roth IRAs are a type of bond.

Answer explanation

The main difference is that Roth IRAs are funded with after-tax dollars, meaning you pay taxes on the money before contributing. In contrast, withdrawals from a Roth IRA are tax-free, unlike traditional IRAs which are taxed upon withdrawal.

What is a 529 education plan?

• A plan to save for future education expenses with tax advantages.

• A plan to buy 529 textbooks.

• A plan to invest in 529 different stocks.

• A plan to become a professor in 529 days.

Answer explanation

A 529 education plan is specifically designed to help families save for future education expenses, offering tax advantages that make it a beneficial option for funding education costs.

Which of the following is NOT a type of investment?

• Stocks

• Bonds

• CDs

• Chocolate coins

Answer explanation

Chocolate coins are not a type of investment like stocks, bonds, or CDs. They are typically novelty items or treats, whereas the others are financial instruments used for investing.