WorksheetsUnit Eight: Financial Planning Review
Total questions: 32
Worksheet time: 16mins
Of the many ways you can invest for your future, there is one that allows you to not only plan for a retirement savings, but also provide supplemental coverage to your insurance. Which of the following achieves this?
Health Savings Accounts
Roth IRA
401 (k)
COBRA
Jack has purchased stocks in companies like Exxon, Tesla, General Electric, etc. When these companies make a profit and report their earnings, Jack and other investors will receive...
Principal
Dividends
Extra Shares
Nothing
Which best explains the difference between common stock and preferred stock?
Common stocks can be traded only through discount brokerages while preferred stocks require a high end brokerage firm or financial advisor.
Common stock refers to shares of a company that are easy to come by and preferred are very rare
Common stocks are easily accessed through the NYSE and NASDAQ. Preferred can only be found on markets that are known to a few.
Common stocks do not guarantee dividend payouts while preferred are guaranteed a percentage.
When these companies make a profit and report their earnings, Jack and other investors will receive...
Principal
Extra Shares
Dividends
Nothing
Of the retirement savings options below, which one will guarantee that you do not pay taxes on your money when you withdraw it at retirement?
401(k)
Roth IRA
Traditional IRA
Defined Benefits Plan
Which best explains the relationship between risk and reward in regards to investments and investment strategies?
The lower the risk of the investment the higher the reward.
There is no known relationship between risk and reward.
The lower the risk of the investment the lower the reward.
The higher the risk of the investment the lower the reward.
Based on the information provided, which statement about Kevin's account is true?
Kevin has established a savings account that only pays interest upon withdrawal.
Kevin has opened a savings account that pays interest quarterly.
Kevin has established a savings account with simple interest.
Kevin has established a savings account with compounding interest.
If you were looking to invest your money into a single investment type that would offer, potentially the greatest return, regardless of the risk involved which would be your best choice.
Savings Accounts
Bonds
Stocks
Money Market Acount
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 allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies
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%
Why is compound interest more advantageous than simple interest?
Compound interest allows you to earn interest on the amount you have saved, and on the interest you've already earned
Compound interest means you have a fund manager who is compounding your returns without charging a fee
Compound interest is harder to calculate, so those who use it earn higher profits for their efforts
Compound interest has lower fees than simple interest
Your friend Jenny wants to use a robo-adviser to manage her portfolio. What does this mean?
A computer software system is going to adjust her portfolio based on her preferences.
Jenny can receive investing advice through an online chat service provided through the brokerage firm.
She’ll have a human fund manager with advanced technology manage her portfolio.
Jenny will sit down for quarterly investment meetings with a robot.
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
Gain of $350
Loss of $450
Gain of $800
Why is diversification a recommended investment strategy?
If you diversify your portfolio, you are guaranteed to make a high return.
If you tell your fund manager to use diversification, they’ll charge you lower fees.
Investing in a diversified portfolio guarantees that you won’t lose money with your investments.
Diversifying your portfolio helps reduce risk.
How is a bond different from a stock?
Bonds are typically riskier than stocks but have the potential to earn higher returns.
A bond is usually issued by smaller, startup companies while stocks are with well established organizations.
Bonds are best for earning high returns while stocks are best for providing a stable source of income.
A bond is a loan you give to an organization while a stock is partial ownership in the company.
An actively managed mutual fund…
Always performs better than an index fund
Is managed by a fund manager who charges a fee
Is a mix of two types of stocks and two types of bonds to diversify your portfolio
Generally has lower fees than an index fund
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?
Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month.
Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest.
Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified.
Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget.
What is one question an investor should ask before investing in a Roth IRA or a Traditional IRA?
What type of investments do I want to make?
Do I want to make a guaranteed return of 6% or 8%?
Do I want to pay taxes now (Traditional IRA) or later (Roth IRA)?
Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?
Why are Index Funds such a popular investing option?
They are managed by robo-advisors that guarantee higher returns than the overall stock market
They are actively managed by a fund manager
They are a mix of 2-3 individual stocks that can help you diversify your portfolio
They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500
Of the choices given, which is best defined as a retirement plan in which employees are granted shares of the company that they work for to develop a retirement portfolio?
Defined Benefits Plan
Profit Sharing Plan (PSP)
Simple IRA
Employee Stock Option Plan (ESOP)
What is a 401k?
A retirement account set up through your employer.
A tax-exempt fund for higher education.
A savings account for emergencies.
A piggy bank fund
Which of these accounts will NOT change if you switch jobs?
Roth IRA
401(k)
What account is a good idea if you are in a lower tax bracket than you will be at retirement? Hint: think about which one has taxes taken out now rather than later.
Traditional IRA
Roth IRA
What is it that helps your 401(k) grow so much?
Working Really Hard
Compound Interest
Good Brokers
Estephan should start investing as soon as he has his college education funded.
True
False
What helps your 401(k) grow so much?
Compound Interest
Working Really Hard
Good Brokers
What does it mean if a stock is described as "volatile"?
It pays high dividends.
It has a stable market.
Its price does not change.
Its price can change rapidly in a short period.
What does it mean to buy a share of stock in a company?
Lending money to the company.
Owning the company's products.
Owning a portion of the company.
Borrowing money from the company.
What is a stock market?
A place where groceries are sold.
A venue where stocks and bonds are traded.
A platform for the exchange of services.
A website for buying and selling cars.
David bought stock for $4,000 and one year later he sold it for $1,000. The sale resulted in a:
Capital Loss
Yield
Market Value
Price Earning
Carmen sold her stock in ABC Company for a higher price per share than she bought it for. She realized a:
Capital Loss
Capital Gain
Capital Surplus
Dividend
What is diversification in the context of investing?
Investing all your money in a single stock.
Focusing on stocks from a single industry.
Spreading your investments across various assets to reduce risk.
Buying and selling stocks frequently.
Which is true about risk and return?
More Risk = more possibility to make money
More risk = less possibility to make money
Less Risk = More possibility to make money
Risk and return are calculated with the rule of 72
