Stocks and Bonds Quiz

Which of the following is a type of investment mentioned in the text?

What is the most prevalent type of stock mentioned in the text?

What is the formula for calculating dividend yield?

Which of the following is an accurate description of bonds?

What is the relationship between the term or maturity of a bond and the interest rate?

What is the relationship between the stability of a company and the interest rate on a bond?

What is the relationship between inflation and the rate of return on investments?

Investment Types

Stocks (Shares of ownership in a company)
Bonds (Loans to a company or government)

Stock Types

Common stock: Most prevalent type, represents ownership in a company and provides voting rights.
Preferred stock: Pays a fixed dividend, but usually doesn't come with voting rights.

Dividend Yield Calculation

Dividend yield is calculated by dividing the annual dividend per share by the stock's current market price.

Bonds

Bonds represent loans made to companies or governments.
Investors receive regular interest payments and principal repayment at maturity.

Bond Maturity and Interest Rates

Inverse Relationship: Longer maturity bonds typically have higher interest rates.
Longer maturities mean investors are exposed to more risk, so higher interest rates compensate them for the increased uncertainty.

Company Stability and Bond Interest Rates

Inverse Relationship: More stable companies often issue bonds with lower interest rates.
Investors consider stable companies less risky, so they're willing to accept lower returns.

Inflation and Investment Returns

Inflation erodes purchasing power: If inflation increases, the real return on your investments may diminish.
Higher inflation rates often result in higher interest rates, which can affect investment returns.

Test your knowledge on stocks and bonds with this quiz! Learn about the different types of investments and understand the concept of ownership and equity in the stock market. Discover how stocks can make you a true owner of a company, for better or worse.