WorksheetsInvestment types 101
Total questions: 48
Worksheet time: 2hrs 28mins
What are the basic principles of investing?
Start with your asset allocation
Diversify your portfolio
Control the cost to invest, pay attention to the expense ratio
Finding the right mix of asset types (risky level)
When you buy a stock, you own a piece of the company that issues it
True
False
Choose all true statements:
If you buy a company's stock, you become a part owner and you'll generally make money if the company does well—or lose money if it doesn't.
Depending on how established the company is, most of the money you make will come either through increases in share price or through dividend payments.
Larger companies tend to be more stable than smaller companies, but they also have less room for growth.
If you buy 50 shares at $10 a share and then the share price increases to $15, you're now $ (a) richer.
If you buy 50 shares at $40 a share and then the share price drops to $15, you lost $ (a) .
The stock holder might also receive dividend from the company. Say the issuer of your 50 shares of stock announces a $2 dividend annually. That means you'll be paid $ (a)
The stock holder might also receive dividend from the company. Say the issuer of your 50 shares of stock announces a $2 dividend quarterly. That means you'll be paid $ (a) in total each year.
Over shorter periods of time (weeks or months), the value of a particular stock can fluctuate based on a lot more than the actual performance of the company.
True
False
Companies generally fall into 1 of 2 categories depending on how they make money for their investors. (a) companies are in an expansion phase. Any available money they have is likely to be funneled toward the expansion of their businesses or the development of new products and services. As they (b) , the value of their shares increases. (c) companies are relatively established. While they may still be growing, there's not as much room for the kind of rapid expansion that growth companies pursue. So rather than plow all their cash flow into opportunities for development, these companies are more likely to pay dividends.
Companies can also be divided up based on the total value of their shares—their "capitalization." Stocks are generally considered to be large-, mid-, or small-cap. In general, large-cap stocks make up about (a) % to (b) % of the entire market, and mid- and small-cap stocks about (c) % to (d) % each.
Companies can be grouped by sector. As with capitalization, there are several different sector classification systems. Most systems include categories like technology, health care, and energy.
True
False
Choose all the companies that fall in to consumer discretionary sector.
Nike
McDonald's
Target
The Walt Disney Company
Verizon
Choose all the companies that fall in to Information technology sector.
Dell
Yahoo!
Cisco
Microsoft
Wells Fargo
Just like stocks, bonds give you ownership rights. They represent a loan from the buyer (you) to the issuer of the bond.
True
False
Choose all true statements about bonds:
Bonds can be issued by companies or governments and generally pay a stated interest rate.
The market value of a bond changes over time as it becomes more or less attractive to potential buyers.
Bonds that are higher-quality (more likely to be paid on time) generally offer higher interest rates.
Bonds that have shorter maturities (length until full repayment) tend to offer lower interest rates.
Why buy bonds? Bonds give you 2 potential benefits when you hold them as part of your portfolio: They give you a stream of (a) , and they offset some of the (b) you might see from owning stocks.
This is the interest rate paid by the bond. In most cases, it won't change after the bond is issued.
(a)
This is a measure of interest that takes into account the bond's fluctuating changes in value. There are different ways to measure it, but the simplest is the coupon of the bond divided by the current price.
(a)
This is the amount the bond is worth when it's issued, also known as "par" value. Most bonds have a (a) of $1,000.
In a normal yield curve of bond, longer maturities = lower yields
True
False
Choose all common types of bonds:
U.S. Treasuries
Government agency bonds
Municipal bonds
Corporate bonds
High-yield bonds ("junk bonds") are a type of corporate bond with low credit ratings.
True
False
Cash investments can lower the overall risk of your portfolio and give you a place to hold money while you wait to invest it.
True
False
Your choice between (a) and (b) depends on factors like whether you need to lock in a certain yield and whether you prefer to be covered by FDIC insurance.
Cash investments are (a) -term investments.
These securities have ultra-short-term maturities (from a few days to 1 year) and are considered lower-risk investments. Their share prices are intended to be stable, although the interest rates they pay will fluctuate (and the stability of the share price isn't guaranteed). It is also extremely liquid. You can invest in them through a mutual fund.
money market
Certificates of deposit (CDs)
stocks
bonds
____ are promissory notes issued by banks. As such, they're insured up to a certain amount by the Federal Deposit Insurance Corporation (FDIC) and considered completely safe if held until maturity.
money market
Certificates of deposit (CDs)
stocks
bonds
If you buy a Certificate Deposit through a bank, you'll pay an interest penalty if you need your principal back before the maturity date.
True
False
If you buy a CD through a brokerage, the value of the CD will fluctuate but there's no penalty for selling the CD on the secondary market before maturity.
True
False
The biggest similarity between ETFs (exchange-traded funds) and mutual funds is that they both represent professionally managed collections (or "baskets") of individual (a) or bonds.
Choose all traits that ETFs & mutual funds have in common
Both are less risky than investing in individual stocks& bonds
Both offer a wide variety of investment options
Both are overseen by professional portfolio managers
Both of them can be purchased for as little as the cost of one share
Which type of investment will offer you in-time purchase price?
Individual stocks
ETFs
Mutual funds
When you ___ an option, you're the one who will decide if you want to "exercise" the option sometime before the expiration date. If exercising it will cause you to lose money, you can simply let it expire. That way, the only money you'll lose is what you spent on the option itself.
(a)When you buy a (a) option, you're buying the right to purchase a specific security at a locked-in price (the "strike price") sometime in the future.
When you buy a (a) option, you're buying the right to sell someone a specific security at a locked-in strike price sometime in the future.
______ are designed to keep pace with market returns because they try to mirror certain market segments.
Index mutual funds & ETFs
Actively managed funds
______ try to beat market returns with investments hand-picked by professional money managers.
Index mutual funds & ETFs
Actively managed funds
A (a) is a collection of investors' money that fund managers use to invest in stocks, bonds, and other securities
(a) fund provides broad market exposure, low operating expenses, and low portfolio turnover.
Index funds are considered ideal core portfolio holdings for retirement accounts, such as Roth IRA and traditional IRA. Because it makes more sense for the average investor to buy all of the S&P 500 companies at the low cost of an index fund.
True
False
Choose all true statements for index fund:
a portfolio of stocks or bonds designed to mimic the composition and performance of a financial market index.
lower expenses and fees than actively managed funds.
follow a passive investment strategy.
seek to match the risk and return of the market based on the theory that in the long term, the market will outperform any single investment.
(a) fund: Each fund is designed to manage risk while helping to grow your retirement savings.
Organize these options into the right categories for index mutual funds or index ETF
Lower risk through diversification
Low expense ratios
Strong long-term returns
Ideal for passive, buy-and-hold investors
Lower taxes for investors
Vulnerable to market swings and crashes
Lack of flexibility
Limited gains
An (a) ratio reflects how much a mutual fund or an ETF (exchange-traded fund) pays for portfolio management, administration, marketing, and distribution, among other expenses.
Based on the information offered, if you intend to invest in Vanguard 500 Index Fund, what will be the net 10-year average annual rate of return?
(a)
Based on the information offered, if you intend to invest in Vanguard Total stock market index fund, what will be the net 10-year average annual rate of return?
(a)
When considering investment in mutual funds, the ______ ratio is an important factor to consider as it indicates the percentage of assets used to cover operating expenses.
turnover
expense
dividend yield
capital gain
How To Start Investing in Index Funds
Choose an investment platform
Open an account
Fund your account
Select your index funds
Purchase shares, monitor and adjust as needed
