WorksheetsInvesting Unit Final Review
Total questions: 33
Worksheet time: 17mins
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
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
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
Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?
ETFs are traded once a day after the market closes
An ETF is a single stock that you can buy in the stock market
Actively managed ETFs have very low fees
ETF prices can change throughout the day as they are exchanged on the market
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
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
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
What is a brokerage account used for?
It’s an online portal that allows you to set up appointments with a fund manager
It’s the account you use to pay any taxes you owe on money you earned on your investments
It’s a type of account used to buy and sell stocks, bonds, and funds
It’s a special type of 401(k) plan that only some employers offer
Why is it important for you to understand your risk tolerance before you start investing?
It helps you decide if you want to participate in your employer’s match program for your 401(k)
It’s recommended that people with a low risk tolerance shouldn’t invest at all
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
You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with
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?
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
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 TDF is actively managed by a fund manager but comes with low fees
A TDF buys a single stock and bond so that beginner investors can practice day trading
A TDF is insured by the federal government, so Sam's money is protected even if the fund performs poorly
A TDF will automatically adjust his asset allocation based on the retirement year he has chosen
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?
Do I want to make a guaranteed return of 6% or 8%?
Do I want to pay taxes now or later?
Do I want to take advantage of my employer’s matching contribution?
Do I want to take on more or less risk?
As a shareholder in a public company, what are the benefits available to you?
You may receive dividends from the company, if the company pays them, and you have ownership of a portion of the company
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))
You can select members of the management team [e.g., the Chief Executive Officer (CEO)] and vote for members of the Board of Directors
You have ownership of a portion of the company and receive coupon payments from the issuer
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%
What is the main difference between investors and traders?
Investors focus on long-term growth while traders aim for short-term gains
Investors primarily buy stocks while traders primarily sell stocks
Investors buy and sell stocks frequently while traders buy and hold stocks for a long period of time
Investors tend to take on lots of risk while traders take zero risk
Which of the following statements BEST describes the stock market?
Businesses listing their entire company for sale
Businesses selling partial ownership of their companies to raise capital
Investors buying stock in hopes of being hired by companies
People making donations to companies that need funding
During a BULL market...
Investors are pessimistic about how the stock market will perform
The economy is not doing as well
More investors are buying stocks, which causes stock values to increase
The unemployment rate in the country increases
What is a stock?
A measurement of a company’s profits
An investment option that allows you to own a small piece of a company
An annual report that includes details about a company’s leadership and earnings
A low-risk savings option that can help you build an emergency fund
When reading a stock quote, which of the following metrics would give you the best idea of the total value of the company?
The stock ticker symbol
The price change of the stock, quoted as a percentage
The market cap
The stock’s opening and closing price for that day
Which of the following is TRUE about a stock split?
Stock splits impact the overall value of a company
Stock splits decrease the number of shares you own
Stock splits indicate that a company is doing poorly
Stock splits make a stock more accessible to a greater number of investors
Which of the following most accurately describes what a bond is?
A bond is a government loan made to an individual investor with the expectation that it will be paid back with interest
A bond is an investment in which a corporation lends an individual investor money with the expectation that it will be paid back with interest
A bond is a government loan made to a corporation with the expectation that it will be paid back with interest
A bond is an investment in which an investor lends money to a corporation or government with the expectation that it will be paid back with interest
Juan buys a bond with a fixed coupon rate of 3%. Six months later, similar bonds that are issued have a coupon rate of 4%. Which of the following is TRUE if he chooses to sell the bond before maturity?
The price of Juan’s bond will increase
More investors will be willing to buy Juan’s bond
The interest rate of Juan’s bond will increase to reflect the current market
The price of Juan’s bond will decrease
One difference between bonds and bond funds is...
Buying an individual bond is generally cheaper than buying a bond fund
A bond fund can help you diversify your investment portfolio
Bonds pay dividends to its investors
You receive the principal amount you invest in a bond fund after a certain amount of time
All of the following are strategies to reduce risk EXCEPT...
Holding your investments for at least five years
Making sure your investments are diversified
Hiring an investment manager who you think can beat the market
Investing small amounts of money over longer periods of time
Leaving your investments in the stock market alone for at least five years is a good way to reduce risk because...
It allows your investments to earn more interest
It keeps you from reacting to dips in the market and selling at too low of a price
Fees are waived for investments held for over five years
You get a bonus from the company if you invest for five years
Which of the following is an example of diversification?
Putting the majority of your money into a savings account and investing the rest
Investing different amounts of money every month
Purchasing shares of stock in a variety of companies and industries
Using multiple investment managers to get different opinions
What does it mean when someone says “Good investing is boring”?
There should be little to no change in how your portfolio performs
You should avoid talking to anyone about how your investments are performing
You’re better off making long-term investments that don’t require day-to-day management
You should avoid checking how your investments are doing for at least 10 years
All of the following are recommended strategies for beginner investors EXCEPT...
Try to pick winning stocks and beat the market
Recognize cognitive biases that may be influencing your decisions
Minimize expense ratios to cut back on costs
Choose your investments based on your risk tolerance
Which of the following is a characteristic of a brokerage account?
Typically no capital gains tax
Limits on how much you can invest
No penalties for withdrawing your money
Require a large amount of money to open an account
401(k)s and IRAs are both...
Types of investments that you can choose to have in an investment account
Investment accounts that are commonly offered by employers
A type of savings account that generally offers around a 1% rate of return
Investment accounts that you can open to help you invest for retirement
All of the following are advantages of a 401(k), EXCEPT...
You don’t pay taxes on your investments’ growth each year
You can invest your 401(k) into a wider variety of asset types than you can with an IRA
Your employer may match some of your 401(k) contributions
You can contribute more money into a 401(k) than into an IRA
Which type of retirement account is an investment option for ANY young person?
Traditional IRA
Pension
401(k)
Social security
