Fundamentals of Finance

What is the primary goal of investing?

• To grow wealth over time.

• To avoid financial risks altogether.

• To save money for emergencies.

• To speculate on short-term market trends.

What is the difference between stocks and bonds?

• Bonds are shares in a company.

• Stocks are safer than bonds.

• Stocks pay fixed interest rates.

• Stocks represent ownership in a company; bonds represent a loan to an entity.

What does diversification mean in investment?

• Focusing on short-term gains without considering risk.

• Diversification means spreading investments across different assets to reduce risk.

• Choosing investments based solely on past performance.

• Investing only in one type of asset to maximize returns.

What is a mutual fund?

• A mutual fund is a type of bank account for saving money.

• A mutual fund is a government bond that guarantees returns.

• A mutual fund is a loan given to businesses for expansion.

• A mutual fund is an investment vehicle that pools money from multiple investors to buy a diversified portfolio of securities.

What is the purpose of a financial plan?

• To track daily expenses and income only.

• To avoid any form of investment.

• To create a budget for personal shopping only.

• The purpose of a financial plan is to set financial goals and create a strategy to achieve them.

What are the key components of a budget?

• Sales, debts, donations, taxes

• Assets, liabilities, equity, cash flow

• Income, expenses, savings, investments

• Revenue, liabilities, profits, loans

What is the time value of money?

• Money loses value over time due to inflation.

• Future money is always worth more than present money.

• The time value of money is the principle that money available now is worth more than the same amount in the future due to its potential earning capacity.

• The time value of money only applies to investments in stocks.

What is an emergency fund and why is it important?

• An emergency fund is only for medical expenses.

• An emergency fund is a savings account for unexpected expenses, and it is important for financial security and stress reduction.

• An emergency fund is a type of insurance policy.

• An emergency fund is a loan from the bank.

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

• Traditional IRAs require contributions to be made after taxes.

• Roth IRAs have higher contribution limits than traditional IRAs.

• The main difference is that traditional IRA contributions may be tax-deductible, while Roth IRA contributions are made with after-tax income.

• Both types allow tax-free withdrawals at retirement.

What factors should be considered when setting financial goals?

• Market trends

• Tax regulations

• Current financial situation, income, expenses, debt levels, time horizon, risk tolerance, personal values.

• Investment strategies