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Financial Instruments Quiz

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Questions and Answers

What defines a Certificate of Deposit (CD)?

An investment account that allows daily withdrawals without penalties.

A type of mutual fund that pools money for high-risk stocks.

A government-issued bond that funds private projects.

An account that holds a fixed amount of money for a set period, in exchange for interest. (correct)

What is a Municipal Bond primarily used for?

To fund local projects by local governments. (correct)

To raise capital for corporate expansions.

To secure loans from private investors at high interest.

To provide dividends to shareholders annually.

What are dividends?

Interest earned from a savings account.

The capital gained from selling an asset at a higher price.

Loans taken by corporations from investors.

Payments made to shareholders from a company's profits. (correct)

What is the primary function of a 401(k)?

<p>To allow tax-free savings for retirement through payroll deductions.</p> Signup and view all the answers

What is meant by Capital Gains?

<p>A profit from the sale of property or an investment.</p> Signup and view all the answers

Study Notes

Certificate of Deposit (CD)

Fixed sum of money held for a specific time period
Earns interest

Municipal Bond

Issued by local, county, or state governments
Funds local projects
Not taxed at the federal level

Stock

Represents ownership in a company
Gives the owner a claim to the company’s assets and earnings

Bond

Loan from an investor to a borrower (government, corporation, or municipality)
Repaid with interest after a specified period

Dividends

Regular payments (typically quarterly) made by a company to shareholders
Paid from profits or reserves

401(k)

Retirement savings plan
Employees contribute and invest a portion of their paycheck tax-free

Capital Gains

Profit from selling property or an investment

Mutual Fund

Pool of money from multiple investors
Used to buy stocks, bonds, and other investments
Managed by professionals who choose investments

Savings Account

Holds money not intended for immediate spending
Earns moderate interest
Money can be withdrawn at any time

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Description

Test your knowledge on various financial instruments including certificates of deposit, municipal bonds, stocks, and more. This quiz covers essential concepts that are crucial for understanding personal finance and investing. Perfect for students and anyone interested in finance!