Investment Basics Quiz

What is one benefit of starting to invest money at a young age?

• Interest compounds over time.

• Accounts pay immediate returns.

• Early investing reduces investment risk.

• Investing early guarantees higher interest rates.

If Marcus invests in an account that yields 8% growth annually, how long will it take for his investment to double?

• 9 years

• 10 years

• 13 years

• 15 years

An individual wants to save $500 to buy a new bicycle in the next five months. Criteria for the account: - No risk, FDIC insured - Funds are accessible at any time - Low fees - No required minimum balance Which savings option would BEST meet these criteria?

• A money market mutual fund

• A certificate of deposit

• A bank savings account

• A money market savings account

What are investment options that offer the highest potential for returns but also the highest level of risk?

• Government Bonds

• Certificates of Deposit (CDs)

• Stocks

• Real Estate

What is a good practice to diversify investment portfolios with a variety of high- and low-risk investments?

• Maximizes returns while decreasing the overall volatility of an investment portfolio

• Ensures consistent returns regardless of market fluctuations

• Prevents investors from making reactionary decisions during bear markets

• Increases the number of investments in a single sector

What is the benefit of exchange-traded funds (ETFs) over mutual funds?

• Mutual funds have higher risk because they are managed by individual investors while ETFs are professionally managed.

• ETFs usually specialize in one type of fund or section of the market while mutual funds often invest in a wide range of stocks and bonds.

• ETFs typically have low expenses while mutual funds have higher fees because they are more actively managed.

• Mutual funds charge higher commissions while ETFs trades are usually free of commission.

Why is purchasing bonds an attractive investment option?

• Bonds are easier to buy and sell than other investment options.

• Bonds guarantee a consistent increase in value annually.

• Bonds are insured under the FDIC.

• Bonds pay a fixed rate of return.

A freelancer wants to build an emergency fund but is concerned that his income is inconsistent and is based on projects he gets to work on. What advice will be best for him to achieve his goals most efficiently?

• Get a loan to contribute to the emergency fund.

• Save unexpected tax refunds and birthday cash gifts.

• Start an emergency fund when he gets a salaried employment.

• Invest all earnings in high-return ventures to grow wealth quickly.

If an individual is planning to purchase a car within the next two years, which step could BEST help them achieve their goal at the lowest cost?

• Setting up automatic deposits into a 401K from every paycheck

• Saving at least twenty percent for a down payment in a high-yield savings account

• Taking out a loan with an affordable monthly payment for the cost of the car

• Buying an extended warranty on a new car to cover any unexpected expenses

Why is investing in the stock market a good strategy for a young worker saving for retirement?

• Stocks are low-risk and provide a steady return.

• Stocks are guaranteed to consistently outperform bonds.

• Stocks are easier to access than money saved in certificates of deposit.

• Stocks provide a good return on investment in the long term despite the short-term risks.