Foundations in Personal Finance Chapter 8 Quiz
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Questions and Answers

Which of the following include long-term investments properly diversified?

  • Savings accounts
  • International (correct)
  • Growth (correct)
  • Aggressive growth (correct)
  • Which of the following is a good investment option?

  • Mutual funds (correct)
  • Savings accounts
  • Real estate
  • Stocks
  • What is true about liquidity?

    The more liquid an investment, the less return.

    Why do people need to save and invest?

    <p>To enable their money to make money.</p> Signup and view all the answers

    If you own stock in Company X, what can you expect to receive?

    <p>Dividend.</p> Signup and view all the answers

    Savings accounts and money-market accounts are most appropriate for?

    <p>Emergency funds and short-term goals.</p> Signup and view all the answers

    What is the benefit of diversification in your investments?

    <p>Reduced risk.</p> Signup and view all the answers

    To ensure that some of your retirement savings will not be subject to income tax upon withdrawal, you would contribute to?

    <p>A Roth IRA.</p> Signup and view all the answers

    What type of fund is a young investor willing to take moderate risk most likely interested in?

    <p>Mutual funds.</p> Signup and view all the answers

    What should you do regarding your 401(k) plan regardless of company matching?

    <p>Fund your plan.</p> Signup and view all the answers

    What retirement plan is found in nonprofit organizations like churches and hospitals?

    <p>403(b).</p> Signup and view all the answers

    Which statement about the stock market is false?

    <p>The New York Stock Exchange (NYSE) is the smallest organized stock exchange in the United States.</p> Signup and view all the answers

    When buying and selling investments, what should you avoid?

    <p>Switching your investment strategy often, based on market conditions.</p> Signup and view all the answers

    What do employee benefits packages include?

    <p>Non-wage compensations.</p> Signup and view all the answers

    What is a savings account sold by an insurance company that provides payments at specified intervals?

    <p>Annuity.</p> Signup and view all the answers

    Money markets are great for your emergency fund due to their liquidity and stability.

    <p>True</p> Signup and view all the answers

    The last time the United States issued war bonds was during the Vietnam War.

    <p>False</p> Signup and view all the answers

    A mutual fund portfolio that is properly diversified will have all investment dollars located in just one of four different classes of financial assets.

    <p>False</p> Signup and view all the answers

    Single stocks and mutual funds carry the same amount of risk.

    <p>False</p> Signup and view all the answers

    You can start investing with a small amount of money.

    <p>True</p> Signup and view all the answers

    Good investment portfolios are extremely complex.

    <p>False</p> Signup and view all the answers

    You should start investing as soon as you have your college education funded.

    <p>True</p> Signup and view all the answers

    If you leave a job and have money saved in your employer's retirement plan, it is wise to roll that money into an IRA.

    <p>True</p> Signup and view all the answers

    If you get into financial trouble, borrowing against your retirement plan is a good option.

    <p>False</p> Signup and view all the answers

    Saving and investing have nothing to do with the amount of money you make.

    <p>True</p> Signup and view all the answers

    What quality permits an asset to be converted quickly into cash without loss of value?

    <p>Liquidity.</p> Signup and view all the answers

    What describes the relationship of substantial reward compared to the amount of risk taken?

    <p>Risk-return ratio.</p> Signup and view all the answers

    What is a list of your investments called?

    <p>Portfolio.</p> Signup and view all the answers

    What is a piece of ownership in a company or mutual fund referred to as?

    <p>Share.</p> Signup and view all the answers

    What are securities that represent part ownership or equity in a corporation?

    <p>Stocks.</p> Signup and view all the answers

    What is the money invested within a retirement plan that is either tax deferred or tax free called?

    <p>Tax-favored dollars.</p> Signup and view all the answers

    What is the government agency responsible for regulating the stock market?

    <p>Securities Exchange Commission.</p> Signup and view all the answers

    Which federal agency is responsible for collecting taxes and enforcing tax codes?

    <p>Internal Revenue Service.</p> Signup and view all the answers

    What is distribution of a portion of a company's earnings to its shareholders called?

    <p>Dividend.</p> Signup and view all the answers

    What is a savings plan designed to help families set aside funds for future college costs?

    <p>529 Plan.</p> Signup and view all the answers

    Study Notes

    Long-term Investments

    • Properly diversified long-term investments include growth, growth and income, international, and aggressive growth mutual funds.

    Good Investment Options

    • Mutual funds are considered a good investment option for various financial goals.

    Liquidity of Investments

    • There is an inverse relationship between the liquidity of an investment and its potential return; more liquid investments tend to yield lower returns.

    Importance of Saving and Investing

    • Savings and investments enable money to generate additional income over time.

    Dividends

    • Shareholders of Company X can expect to receive dividends when the board of directors decides to issue earnings.

    Savings Accounts Usage

    • Savings accounts and money-market accounts are best suited for emergency funds and short-term financial goals.

    Diversification Benefits

    • Diversification of investments helps reduce risk by spreading investment dollars across various assets.

    Tax Treatments on Withdrawals

    • Contributions to a Roth IRA ensure that some retirement savings remain tax-free upon withdrawal.

    Young Investor Preferences

    • A young investor with a moderate risk tolerance seeks mutual funds for potential above-average growth.

    401(k) Plans

    • It's advisable to contribute to a 401(k) plan regardless of employer matching since many employers offer contribution matches.

    403(b) Retirement Plans

    • A 403(b) plan serves as a retirement option for employees in nonprofit organizations like schools and hospitals.

    Stock Market Misconceptions

    • A false statement about the stock market is that the NYSE, formed in 1792, is the smallest organized exchange in the U.S.

    Investment Strategy Consistency

    • Investors should avoid frequently changing strategies based on market trends, maintaining a consistent approach is key.

    Employee Benefits

    • Employee benefits packages provide non-wage compensations in addition to salaries.

    Annuities

    • An annuity is a savings account from an insurance company that makes periodic payments after retirement.

    Money Market Accounts

    • Money market accounts are highly recommended for emergency funds due to their liquidity and stability.

    War Bonds Issuance

    • The statement regarding the last issuance of war bonds in the Vietnam War is false; they have been issued more recently.

    Misconceptions About Mutual Funds

    • A properly diversified mutual fund does not place all investment dollars into a single class of financial assets.

    Risk Assessment

    • Single stocks carry higher risk compared to mutual funds, which are generally less risky.

    Investment Accessibility

    • Individuals can initiate investments with small amounts of money, making it accessible to a broader audience.

    Investment Portfolio Complexity

    • Good investment portfolios are not necessarily complex; simplicity can often lead to better investment outcomes.

    Timing for Investment

    • It is advisable to start investing soon after securing funding for college education.

    Retirement Plan Transfers

    • Always opt for a direct rollover into an IRA when leaving a job to avoid taxes and penalties on retirement savings.

    Borrowing Against Retirement Plans

    • Borrowing from a retirement plan during financial distress is not recommended.

    Saving and Earning Correlation

    • Saving and investing are not solely dependent on income levels; anyone can participate regardless of earnings.

    Definitions

    • Liquidity: The quality that allows quick conversion of assets into cash without sacrificing value.
    • Risk-return Ratio: This indicates the relationship between expected rewards and the risks taken in investments.
    • Portfolio: A comprehensive list of an individual’s investments.
    • Share: Represents ownership in a company or mutual fund.
    • Stocks: Securities that denote partial ownership in a corporation.
    • Tax-favored Dollars: Money invested under favorable tax conditions in retirement accounts.
    • Securities Exchange Commission: The federal agency responsible for stock market regulation.
    • Internal Revenue Service: Agency tasked with tax collection and enforcement of tax laws.
    • Dividend: A distribution of earnings to shareholders determined by the board of directors.
    • 529 Plan: A state-operated savings plan assisting families in funding future college expenses.

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    Description

    Test your knowledge on key concepts from Chapter 8 of Foundations in Personal Finance. This quiz covers important topics related to long-term investments, mutual funds, and liquidity. Ideal for reinforcing your understanding before exams.

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