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WorksheetsInvesting - Unit Test
Total questions: 18
Worksheet time: 9mins
Name
Class
Date
1.
1. 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
2.
Nancy is new to investing and is eager to get started. All of the following are things she should do EXCEPT...
a)
Invest in a low cost index fund
b)
Estimate how much she will need for retirement to determine how much she needs to invest each month
c)
Pick individual stocks to see if she can beat the market
d)
Invest in a diversified portfolio
3.
3. Which of the following accurately describes a difference between an individual bond compared to a bond fund?
a)
A bond pays you dividends while a bond fund pays you regular interest
b)
A bond guarantees you a higher rate of return than a bond fund
c)
A bond is issued by a company while bond funds only invest in government bonds
d)
A bond is considered to be a less diversified investment than a bond fund
4.
4. Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?
a)
ETFs are traded once a day after the market closes
b)
An ETF is a single stock that you can buy in the stock market
c)
Actively managed ETFs have very low fees
d)
ETF prices can change throughout the day as they are exchanged on the market
5.
5. Which of the statements below BEST describes the relationship between risk and return when considering an investment?
a)
Investors expect to earn a lower return when they invest in a high risk asset
b)
Investors expect to earn a higher return when they invest in a low risk asset
c)
Investors expect to earn a higher return when they invest in a high risk asset
d)
Investors expect to earn zero return when investing in a low risk asset
6.
6. Why is diversification a recommended investment strategy?
a)
Investing in a diversified portfolio guarantees that you won’t lose money with your investments
b)
If you tell your fund manager to use diversification, they’ll charge you lower fees
c)
Diversifying your portfolio helps reduce risk
d)
If you diversify your portfolio, you will definitely earn a high return
7.
7. 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 a company
b)
Bonds are typically riskier than stocks but have the potential to earn higher returns
c)
Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations
d)
Bonds are best for earning high returns while stocks are best for providing a stable source of income
8.
8. How can someone make money from investing in a stock?
a)
They sell the stock for a lower price than what they bought it for
b)
They receive dividends or they sell the stock at a higher price than what they bought it for
c)
The stock loses value but the overall market experiences a positive return
d)
They sell the stock for the same price they bought it for
9.
9. What is a brokerage account used for?
a)
It’s an online portal that allows you to set up appointments with a fund manager
b)
It’s the account you use to pay any taxes you owe on money you earned on your investments
c)
It’s a type of account used to buy and sell stocks, bonds, and funds
d)
It’s a special type of 401(k) plan that only some employers offer
10.
10. Why is it important for you to understand your risk tolerance before you start investing?
a)
It helps you decide if you want to participate in your employer’s match program for your 401(k)
b)
It’s recommended that people with a low risk tolerance shouldn’t invest at all
c)
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
d)
You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with
11.
11. Katrina 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?
a)
Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget
b)
Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified
c)
Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest
d)
Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month
12.
12. Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?
a)
A TDF is actively managed by a fund manager but comes with low fees
b)
A TDF buys a single stock and bond so that beginner investors can practice day trading
c)
A TDF is insured by the federal government, so Sam's money is protected even if the fund performs poorly
d)
A TDF will automatically adjust his asset allocation based on the retirement year he has chosen
13.
13. What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?
a)
Do I want to make a guaranteed return of 6% or 8%?
b)
Do I want to pay taxes now or later?
c)
Do I want to take advantage of my employer’s matching contribution?
d)
Do I want to take on more or less risk?
14.
14. As a shareholder in a public company, what are the benefits available to you?
a)
You may receive dividends from the company, if the company pays them, and you have ownership of a portion of the company
b)
You must receive dividends from the company (all companies must pay them) and you can select members of the management team (e.g., the Chief Executive Officer (CEO))
c)
You can select members of the management team [e.g., the Chief Executive Officer (CEO)] and vote for members of the Board of Directors
d)
You have ownership of a portion of the company and receive coupon payments from the issuer
15.
15. 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?
a)
The price of your bond will increase
b)
The demand for your bond will decrease
c)
The price of your bond will stay the same
d)
The interest rate for your bond will fall to 3%
16.
What is the primary benefit of investing in a mutual fund?
a)
It guarantees a fixed return on investment
b)
It allows for diversification across various assets
c)
It requires no management fees
d)
It is insured by the federal government
17.
Which of the following is a characteristic of a high-yield savings account?
a)
It offers higher interest rates than a regular savings account
b)
It allows for unlimited withdrawals without penalties
c)
It is only available to corporate investors
d)
It requires a minimum investment of $10,000
18.
Why might an investor choose to invest in index funds?
a)
Index funds are actively managed and have high fees
b)
Index funds aim to replicate the performance of a specific market index
c)
Index funds guarantee a higher return than individual stocks
d)
Index funds are only available to institutional investors
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