WorksheetsUnit 2 Review (Investing)
Total questions: 45
Worksheet time: 11hrs 15mins
Name
Class
Date
1.
Terminology
A security in which the investor loans money to a company or government, which then pays regular interest to the investor and returns the principal on the maturity date
a)
Bond
b)
Stock
2.
Terminology
A share of the value of a company, which can be bought, sold, or traded as an investment and which gives the investor small partial ownership of the company
a)
Bond
b)
Stock
3.
Terminology
A market in which prices are falling, encouraging selling.
a)
Bull
b)
Bear
4.
Terminology
A market in which there is increased stock trading and rising stock prices
a)
Bull
b)
Bear
5.
Terminology
The practice of putting a fixed amount into an investment over a period of time, regardless of the price of that investment
a)
Dollar Cost Averaging
b)
Lump Sum Investing
6.
Terminology
The annual interest payment on a bond, usually expressed as a percentage of its face value
a)
Dividend
b)
Coupon
7.
Terminology
Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis
a)
Dividend
b)
Coupon
8.
Terminology
The rate at which the price of goods increases and consumer purchasing power decreases over time
a)
Deflation
b)
Inflation
9.
Terminology
Reinvesting earned interest back into the principal to allow money to grow exponentially over time
a)
Compound Interest
b)
Inflation
c)
Investing
10.
Terminology
The rate at which the price of goods increases and consumer purchasing power decreases over time
a)
Compound Interest
b)
Inflation
c)
Investing
11.
Terminology
The process of setting money aside to increase wealth over time for long-term financial goals such as retirement
a)
Compound Interest
b)
Inflation
c)
Investing
12.
Terminology
The practice of investing in a large variety of stocks, bonds, and/or funds as a way to reduce your overall risk
a)
Deflation
b)
Inflation
c)
Diversification
13.
Which of the following statements is TRUE about compound interest?
a)
Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts
b)
Compound interest means you have a fund manager who is compounding your returns without charging a fee
c)
Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
d)
Compound interest directly impacts how much you will be charged in fees
14.
An actively managed mutual fund…
a)
Generally has lower fees than a passively managed index fund
b)
Is managed by a fund manager who charges a fee
c)
Always performs better than an index fund
d)
Is a mix of two types of stocks and two types of bonds to diversify your portfolio
15.
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
16.
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
17.
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
18.
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
19.
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
20.
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.
21.
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
22.
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
23.
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.
24.
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
25.
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
26.
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
27.
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
28.
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
29.
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
30.
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
31.
How is risk typically compared between stocks and index funds?
a)
Stocks are usually riskier than index funds
b)
Index funds are always riskier than stocks
c)
Both stocks and index funds have the same level of risk
32.
If you invest $3,000 at an annual interest rate of 6%, which of the following formulas represents the exponential growth of the investment over x years?
a)
$3,000 + 0.06x
b)
$3,000(0.06)^x
c)
$3,000(1 + 0.06)^x
d)
$3,000(1 - 0.06)^x
33.
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%
34.
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
35.
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%
36.
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
37.
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
38.
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
39.
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
40.
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
41.
John invests $7,000 into a passively managed index fund that is linked to the S&P 500, with an expense ratio of 0.3%. His investement earns a 8% rate of return.
How much did his total investment grow in one year with the 8% rate of return (BEFORE FEES)?
a)
$210
b)
$770
c)
$560
d)
$420
42.
John invests $7,000 into a passively managed index fund that is linked to the S&P 500, with an expense ratio of 0.3%. His investement earns a 8% rate of return.
How much does he pay in fees for his passively managed index fund?
a)
$2.26
b)
$22.68
c)
$226.80
d)
$2,268.68
43.
John invests $7,000 into a passively managed index fund that is linked to the S&P 500, with an expense ratio of 0.3%. His investement earns a 8% rate of return.
At the end of the year, what's the total value (AFTER FEES) of John's index fund?
a)
$7,537.32
b)
$7,557.74
c)
$7,333.20
d)
$5,291.32
44.
John invests $7,000 into a passively managed index fund that is linked to the S&P 500, with an expense ratio of 0.3%. His investement earns a 8% rate of return.
How long would it take his $7,000 to double in value (AFTER FEES)?
a)
9 Years
b)
1 Year
c)
3 Years
d)
6 Years
e)
7.7 Years
45.
John invests $7,000 into a passively managed index fund that is linked to the S&P 500, with an expense ratio of 0.3%. His investement earns a 8% rate of return.
John plans on leaving his $7,000 invested for 20 years. What is the value of his investment after 20 years (AFTER FEES)?
a)
$32,626.70
b)
$7,432.19
c)
$30,861.15
d)
$14,864.38
100 %
