WorksheetsExam Review (Investing) - 2024
Total questions: 25
Worksheet time: 13mins
Name
Class
Date
1.
Which of the following is TRUE, based on the historic returns of the S&P 500?
a)
The stock market fluctuates in the short term and is difficult to predict. It has an average annual return of 6-7%, adjusted for inflation.
b)
Stock prices rise consistently in the short term and only decrease during recessions. The stock market has an average annual return of 15%, adjusted for inflation.
c)
The stock market fluctuates in the short term and the majority of investors can predict the direction of the market. The stock market has an average annual return that is negative, adjusted for inflation.
d)
On average, the growth of the stock market matches the rate of inflation. It has an average annual return of 2-3%, adjusted for inflation..
2.
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?
a)
His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation
b)
His purchasing power will INCREASE because the interest rate is higher than the historical rate of inflation
c)
His purchasing power will INCREASE because the interest will compound faster than the historical rate of inflation
d)
His purchasing power will remain the SAME because the interest rate is the same as the historical rate of inflation
3.
What is a bond?
a)
A type of loan you can get from the federal government that you pay back with interest
b)
An investment in which you loan money to a corporation or government and are paid back with interest and the principal that you originally lent to them.
c)
A type of loan you can get from a bank that you pay back with interest
d)
An investment in which you loan money to another individual and are paid back with interest
4.
How are active investing and passive investing different?
a)
Active investing requires a hands-off approach while passive investing requires a hands-on approach
b)
Active investing typically has lower fees while passive investing typically has higher fees
c)
Active investing requires you to make a minimum number of trades per day while passive investing does not
d)
Active investing is typically done by a fund manager trying to beat the market while passive investing typically involves investing in a popular index like the S&P 500
5.
A commonly used strategy to minimize investing risk is...
a)
Investing only when a stock's value is rising
b)
Investing in only one company
c)
Hiring an investment manager who promises to provide the largest returns
d)
Diversifying across asset classes and within each asset class
6.
All of the following are true about a passively managed fund EXCEPT…
a)
Fees for a passively managed fund are typically lower than those for an actively managed fund
b)
Passively managed funds are generally seen as low risk investments
c)
A passively managed fund guarantees the average return of the securities it includes
d)
Passively managed funds are managed by a fund manager
7.
Why is compound interest more advantageous than simple interest?
a)
It’s more difficult to calculate, so fewer people use compound interest, making more profits for those who do.
b)
Compound interest accumulates very rapidly, so you only have to save for 3 years or fewer to earn far more money.
c)
Compound interest is attached to the stocks with the highest risk, so you get the highest interest on them.
d)
In compound interest, you earn interest on not only your principal, but also on the interest you’ve already made.
8.
How does investing in the stock market differ from putting money in a savings account at a bank?
a)
Investing is always a less risky option than saving
b)
Investing is best for short-term situations like emergency funds; saving is best for the long-term
c)
Investing typically earns between 1-2% while saving generally earns between 5-7%
d)
Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies
9.
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.
a)
Loss of $800
b)
Gain of $350
c)
Loss of $450
d)
Gain of $800
10.
How is a bond different from a stock?
a)
A bond is a loan you give to an organization while a stock is partial ownership in the company.
b)
Bonds are typically riskier than stocks but have the potential to earn higher returns.
c)
A bond is usually issued by smaller, startup companies while stocks are with well established organizations.
d)
Bonds are best for earning high returns while stocks are best for providing a stable source of income.
11.
Which of the following is TRUE about investing?
a)
It guarantees a high rate of return over a short period of time
b)
It can help you grow your money through the power of compounding
c)
It is meant for achieving short-term financial goals
d)
It involves little risk because your returns are insured up to $250,000
12.
Which of the following explains why risk is not always bad when it comes to investing?
a)
Insurance will cover your investing losses
b)
As risk increases, so does the possibility of greater returns
c)
Robo-advisors eliminate all risk
d)
Gains realized from higher-risk investments are untaxed
13.
Which of the following is a characteristic of dollar-cost averaging?
a)
Dollar-cost averaging involves consistently investing small amounts of money over long periods of time
b)
Dollar-cost averaging is riskier than lump sum investing
c)
Dollar-cost averaging is advantageous because earnings are untaxed
d)
Dollar-cost averaging is offered only through robo-advisors
14.
What are the two ways investors can earn money from a stock?
a)
Dividends and decreasing the stock’s market cap
b)
Dividends and selling the stock at a higher price than they bought it
c)
A fixed interest rate on the investment and selling the stock at a higher price than they bought it
d)
A fixed interest rate on the investment and decreasing the stock’s market cap
15.
What is one difference between actively managed mutual funds and index funds?
a)
Actively managed mutual funds typically have higher fees than index funds do
b)
Actively managed mutual funds invest in less risky investments than index funds
c)
Actively managed mutual funds track the performance of a single stock and bond while an index fund follows an index
d)
Actively managed mutual funds guarantee the average return of the securities in the fund while index funds aim to beat the market
16.
All of the following are true about a passively managed fund EXCEPT…
a)
Fees for a passively managed fund are typically lower than those for an actively managed fund
b)
Passively managed funds are generally seen as low risk investments
c)
A passively managed fund guarantees the average return of the securities it includes
d)
Passively managed funds are managed by a fund manager
17.
Since stocks have better long-term returns than bonds, why don't all investors just invest all of their money in stocks?
a)
Investors have different tolerances for risk and may make bad decisions with a 100% stock portfolio, such as selling out when stock prices have had a significant drop.
b)
Most investors do have a 100% of their money in stocks since bonds are so unpopular
c)
Bonds typically do best when stocks do best so they make returns even better when they are combined
d)
Bonds are riskier than stocks so you want to own both
18.
Calculate the return on investment (ROI) of an investment that you purchased at $6,500 and sold at $9,250.
a)
22%
b)
32%
c)
42%
d)
-29%
19.
Dion is 35 years old and plans to contribute $20,000 to his retirement account this year. About how much of this money should Dion allocate to stocks if he is using the Rule of 110?
a)
$110
b)
$15,000
c)
$3,500
d)
$5,250
20.
Geraldo reviews his brokerage statement and sees the following two mutual fund investments that he made a year ago. ActiveFund20 had an average return (before fees) of 7% per year and an annual fee of 1%. PassiveFund500 had an average return (before fees) of 6.5% per year and an annual fee of 0.1%. Which investment had a better overall return for Geraldo?
a)
ActiveFund20: It had an overall return of 8.0% while PassiveFund500 had an overall return of 6.6%
b)
PassiveFund500: It had an overall return of 6.6% while ActiveFund20 had an overall return of 8%
c)
ActiveFund20: It had an overall return of 7.0% while PassiveFund500 had an overall return of 6.5%
d)
PassiveFund500: It had an overall return of 6.4% while ActiveFund20 had an overall return of 6.0%
21.
Jennie invests $7,000 in an actively managed mutual fund that has an annual expense ratio of 1.2%. The investment earns a 6% rate of return.
How much did her investment grow in one year with the 6% rate of return (BEFORE FEES)?
a)
$4200
b)
$420
c)
$8400
d)
$840
22.
Jennie invests $7,000 in an actively managed mutual fund that has an annual expense ratio of 1.2%. The investment earns a 6% rate of return.
How much does she pay in fees for her actively managed mutual fund?
a)
$84.00
b)
$86.52
c)
$12.00
d)
$89.04
23.
Jennie invests $7,000 in an actively managed mutual fund that has an annual expense ratio of 1.2%. The investment earns a 6% rate of return.
At the end of the year, what's the total value (AFTER FEES) of Jennie's mutual fund?
a)
$7,408.00
b)
$7,330.96
c)
$7,333.48
d)
$7,336.00
24.
Jennie invests $7,000 in an actively managed mutual fund that has an annual expense ratio of 1.2%. The investment earns a 6% rate of return.
How long would it take her $7,000 to double in value (AFTER FEES)?
a)
15 Years
b)
2 Years
c)
4.8 Years
d)
5 Years
e)
6 Years
25.
Jennie invests $7,000 in an actively managed mutual fund that has an annual expense ratio of 1.2%. The investment earns a 6% rate of return.
Jennie plans on leaving her $7,000 invested for 25 years. What is the value of her investment after 25 years (AFTER FEES)?
a)
$22, 601.13
b)
$30,043.10
c)
$9,432.15
d)
$175,000
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