Investment Basics Quiz

Why do companies sell shares of stock?

• To increase their debt

• To raise money for expansion

• To decrease their value

• To pay off loans

Is a stock considered a safe or risky investment?

• Safe

• Risky

• Neither

• Both

What does diversification mean in investing?

• Investing in a single company

• Investing in multiple companies to reduce risk

• Investing in only bonds

• Investing in only stocks

Which is more risky: investing a lot in one company, or a little in a lot of companies?

• Investing a lot in one company

• Investing a little in a lot of companies

• Both are equally risky

• Neither is risky

What is a mutual fund?

• A single stock investment

• A professionally managed collection of investments

• A type of bond

• A real estate investment

What does an index fund do?

• Copies a specific index for low cost and steady returns

• Invests in real estate properties

• Focuses on high-risk stocks

• Provides loans to companies

What is the difference between a stock, a bond, and a mutual fund?

• They are all the same type of investment

• Stocks are ownership in a company, bonds are loans, mutual funds are collections of investments

• Stocks are loans, bonds are ownership, mutual funds are savings accounts

• Stocks and bonds are the same, mutual funds are different

Why is diversification important in investing?

• It increases risk

• It reduces risk by spreading investments

• It guarantees high returns

• It focuses on a single investment

What is a common feature of index funds?

• High management fees

• They copy a specific index

• They focus on high-risk investments

• They are not available to individual investors