WorksheetsUnit 7 Test - Investing
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.
Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use?
a)
Social Security is a type of retirement savings plan that you can open through a brokerage firm
b)
Social Security is a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible
c)
Social Security is a type of retirement savings plan offered by some employers
d)
Social security is a government mandate that requires employers to offer their employees a 401(k) or pension plan
3.
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
4.
All of the following are advantages of saving for retirement in a 401(k), EXCEPT...
a)
A 401(k) has a higher contribution limit than an IRA
b)
You can withdraw money at any time without paying a penalty
c)
Some employers will match contributions to your 401(k)
d)
Your 401(k) contributions are tax-deductible
5.
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
6.
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
7.
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
8.
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
9.
Which of the following is TRUE about pension plans?
a)
More nonunion workers have access to pension plans than union workers
b)
How much an employee gets from a pension depends on how long they’ve worked for the employer and how much they earn
c)
Employees generally control the investments within a pension plan
d)
Pension plans are becoming increasingly common among employers in the U.S.
10.
Tracie is new to investing and is going to use an app that offers trades with zero fees. After opening her account, Tracie should first...
a)
Invest a large sum of money
b)
Limit herself to one small investment so she can't lose as much
c)
Conduct research on the investments she's interested in
d)
Hire an investment manager
11.
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
12.
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
13.
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
14.
All of the following are risks of investing in a single stock, EXCEPT...
a)
If the company’s profits decline, the stock price could decrease
b)
If the overall stock market declines, the stock price could decrease
c)
If the company does not issue new stock, current stockholders could lose their entire investment
d)
If the company goes out of business, stockholders could lose their entire investment
15.
All of the following should be considered when creating your investing strategy EXCEPT...
a)
Your credit score
b)
The amount of time your money will be invested before you start drawing from it
c)
Your risk tolerance
d)
The amount of capital you have available to invest
16.
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
17.
Exchange traded funds...
a)
are considered to be high-risk investments
b)
can be traded throughout the day
c)
have become less popular among investors
d)
typically aim to beat the overall market's performance
18.
Which of the following is an advantage of using a robo-advisor compared to hiring most financial advisors?
a)
Lower fees
b)
Lower returns
c)
Higher fees
d)
Higher returns
19.
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%
20.
Aleah is 19 and wants to get a head start on investing and opens a brokerage account. All of the following are benefits of doing so EXCEPT...
a)
Any realized gains would be exempt from capital gains tax
b)
It gives her access to invest in securities like stocks, bonds, and mutual funds
c)
There is no limit on the amount of money she can invest in securities
d)
It allows her to withdraw funds without penalty
21.
Ben is 24 and wants to start saving for retirement. What can he do to set himself up for success?
a)
Wait until his 30s to start investing
b)
Invest 10-15% of his monthly salary
c)
Invest primarily in low-risk investments like bonds
d)
Delay his expected retirement age by 20 years
22.
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
23.
Who would benefit the MOST from investing in a Roth IRA rather than another type of retirement account?
a)
Someone who expects to earn significantly less when they are at retirement age, so they’ll be at a lower tax bracket in the future
b)
Someone who is at retirement age so they don’t have to worry about investing or paying taxes
c)
Someone who has a high income so they don't want have to pay tax on their current contributions
d)
Someone who is young and expects to earn more money later in life, so they’ll be at a higher tax bracket then
24.
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
25.
If a person would like to avoid having their investment earnings taxed at the same rate as their marginal income tax, they should...
a)
Apply for tax exemption
b)
Wait at least 12 months to sell the investment
c)
Become a professional fund manager
d)
Diversify their investment portfolio
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