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WorksheetsInvesting Unit Review
Total questions: 18
Worksheet time: 12mins
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 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%
Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies
Which of the following statements is TRUE about compound interest?
Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts
Compound interest means you have a fund manager who is compounding your returns without charging a fee
Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
Compound interest directly impacts how much you will be charged in fees
What kinds of behaviors can PREVENT people from making smart investing decisions?
Staying calm when the market is experiencing a downturn
Buying stocks when prices are low and selling them when they’re high
Exiting the market because that’s what everyone else is doing
Investing in a diversified portfolio instead of trying to beat the market
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 DECREASE because the interest rate is lower than the historical rate of inflation
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 remain the SAME because the interest rate is the same as the historical rate of inflation
Which of the following accurately describes a difference between an individual bond compared to a bond fund?
A bond pays you dividends while a bond fund pays you regular interest
A bond guarantees you a higher rate of return than a bond fund
A bond is issued by a company while bond funds only invest in government bonds
A bond is considered to be a less diversified investment than a bond fund
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 lower return when they invest in a high risk asset
Investors expect to earn a higher return when they invest in a low risk asset
Investors expect to earn a higher return when they invest in a high risk asset
Investors expect to earn zero return when investing in a low 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
Diversifying your portfolio helps reduce risk
If you diversify your portfolio, you will definitely earn a high return
Which of the following is a characteristic of dollar-cost averaging?
Dollar-cost averaging is a way to decrease your risk
Dollar-cost averaging is a strategy that only expert investors use
Dollar-cost averaging is advantageous because earnings are untaxed
Dollar-cost averaging is offered exclusively through robo-advisors
How is a bond different from a stock?
A bond is a loan you give to an organization while a stock is partial ownership in a company
Bonds are typically riskier than stocks but have the potential to earn higher returns
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
An actively managed mutual fund…
Generally has lower fees than a passively managed index fund
Is managed by a fund manager who charges a fee
Always performs better than an index fund
Is a mix of two types of stocks and two types of bonds to diversify your portfolio
How can someone make money from investing in a stock?
They sell the stock for a lower price than what they bought it for
They receive dividends or they sell the stock at a higher price than what they bought it for
The stock loses value but the overall market experiences a positive return
They sell the stock for the same price they bought it for
A disadvantage of using a robo-adviser might be that…
You are charged higher fees than if a human fund manager adjusted your portfolio
You may not be able to get advice from a human financial advisor when you want it
You don’t have any input as to how your portfolio is invested
You’ll be put on a waitlist to use the robo-adviser since there are only a handful of them to choose from
Nancy 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
You buy a bond with a fixed coupon rate of 5%. A year later, similar bonds that are issued have a coupon rate of 3%. Which of the following is TRUE?
The price of your bond will increase
The demand for your bond will decrease
The price of your bond will stay the same
The interest rate for your bond will fall to 3%
Explain three key differences between index funds and mutual funds.
