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WorksheetsInvesting Assessment Review
Total questions: 11
Worksheet time: 8mins
How does investing in the stock market differ from putting money in a savings account at a bank?
Investing is always a less risky option than saving
Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies
Investing is best for short-term situations like emergency funds; saving is best for the long-term
Investing typically earns between 1-2% while saving generally earns between 5-7%
Daniel has saved $2,000 in a savings account that earns 0.5% interest annually. What will most likely happen to the purchasing power of his savings over time?
His purchasing power will INCREASE because the interest rate is higher than the historical rate of inflation
His purchasing power will INCREASE because the interest will compound faster than the historical rate of inflation
His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation
His purchasing power will remain the SAME because the interest rate is the same as the historical rate of inflation
You bought 10 shares of stock in StreamingVideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. What was your profit or loss on StreamingVideoCo stock? (Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.)
Loss of $800
Profit of $350
Loss of $450
Profit of $800
Which of the statements below BEST describes the relationship between risk and return when considering an investment?
Investors expect to earn a higher return when they invest in a low risk asset
Investors expect to earn a lower return when they invest in a high risk asset
Investors expect to earn zero return when investing in a low risk asset
Investors expect to earn a higher return when they invest in a high risk asset
Why is diversification a recommended investment strategy?
Investing in a diversified portfolio guarantees that you won’t lose money with your investments
If you tell your fund manager to use diversification, they’ll charge you lower fees
If you diversify your portfolio, you will definitely earn a high return
Diversifying your portfolio helps reduce risk
How is a bond different from a stock?
Bonds are typically riskier than stocks but have the potential to earn higher returns
A bond is a loan you give to an organization while a stock is partial ownership in a company
Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations
Bonds are best for earning high returns while stocks are best for providing a stable source of income
How can someone make money from investing in a stock?
They sell the stock for a lower price than what they bought it for
The stock loses value but the overall market experiences a positive return
They receive dividends or they sell the stock at a higher price than what they bought it for
They sell the stock for the same price they bought it for
Why is it important for you to understand your risk tolerance before you start investing?
You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with
If you have a high risk tolerance, you may be eligible for lower fees since you won’t care if your portfolio drastically loses value
It’s recommended that people with a low risk tolerance shouldn’t invest at all
It helps you decide if you want to participate in your employer’s match program for your 401(k)
Sally works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?
Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget
Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified
Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest
Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month
Gina is new to investing and is eager to get started. All of the following are things she should do EXCEPT...
Invest in a low cost index fund
Estimate how much she will need for retirement to determine how much she needs to invest each month
Pick individual stocks to see if she can beat the market
Invest in a diversified portfolio
Why are Index Funds such a popular investing option?
They are a mix of 2-3 individual stocks that can help you diversify your portfolio
They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500
They are actively managed by a fund manager
They are managed by robo-advisors that guarantee higher returns than the overall stock market
