Investing Unit Test PDF

Name: Semester Course 03: Investing Unit Test...

Name: Semester Course 03: Investing Unit Test Spanish Version Investing Unit Test Multiple Choice 1. 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 2. 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 www.ngpf.org Last updated: 9/6/22 1 3. What kinds of behaviors can PREVENT people from making smart investing decisions? a. Staying calm when the market is experiencing a downturn b. Buying stocks when prices are low and selling them when they’re high c. Exiting the market because that’s what everyone else is doing d. Investing in a diversified portfolio instead of trying to beat the market 4. 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 5. 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 6. Which of the statements below BEST describes the relationship between risk and return when considering an investment? a. Investors expect to earn a lower return when they invest in a high risk asset b. Investors expect to earn a higher return when they invest in a low risk asset c. Investors expect to earn a higher return when they invest in a high risk asset d. Investors expect to earn zero return when investing in a low risk asset www.ngpf.org Last updated: 9/6/22 2 7. Why is diversification a recommended investment strategy? a. Investing in a diversified portfolio guarantees that you won’t lose money with your investments b. If you tell your fund manager to use diversification, they’ll charge you lower fees c. Diversifying your portfolio helps reduce risk d. If you diversify your portfolio, you will definitely earn a high return 8. Which of the following is a characteristic of dollar-cost averaging? a. Dollar-cost averaging is a way to decrease your risk b. Dollar-cost averaging is a strategy that only expert investors use c. Dollar-cost averaging is advantageous because earnings are untaxed d. Dollar-cost averaging is offered exclusively through robo-advisors 9. 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 a company b. Bonds are typically riskier than stocks but have the potential to earn higher returns c. Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations d. Bonds are best for earning high returns while stocks are best for providing a stable source of income 10. 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 www.ngpf.org Last updated: 9/6/22 3 11. How can someone make money from investing in a stock? a. They sell the stock for a lower price than what they bought it for b. They receive dividends or they sell the stock at a higher price than what they bought it for c. The stock loses value but the overall market experiences a positive return d. They sell the stock for the same price they bought it for 12. Why is it important for you to understand your risk tolerance before you start investing? a. It helps you decide if you want to participate in your employer’s match program for your 401(k) b. It’s recommended that people with a low risk tolerance shouldn’t invest at all c. If you have a high risk tolerance, you may be eligible for lower fees since you won’t care if your portfolio drastically loses value d. You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with 13. A disadvantage of using a robo-adviser might be that… a. You are charged higher fees than if a human fund manager adjusted your portfolio b. You may not be able to get advice from a human financial advisor when you want it c. You don’t have any input as to how your portfolio is invested d. You’ll be put on a waitlist to use the robo-adviser since there are only a handful of them to choose from 14. Nancy is new to investing and is eager to get started. All of the following are things she should do EXCEPT... a. Invest in a low cost index fund b. Estimate how much she will need for retirement to determine how much she needs to invest each month c. Pick individual stocks to see if she can beat the market a. Invest in a diversified portfolio www.ngpf.org Last updated: 9/6/22 4 15. As a shareholder in a public company, what are the benefits available to you? a. You may receive dividends from the company, if the company pays them, and you have ownership of a portion of the company b. You must receive dividends from the company (all companies must pay them) and you can select members of the management team (e.g., the Chief Executive Officer (CEO)) c. You can select members of the management team [e.g., the Chief Executive Officer (CEO)] and vote for members of the Board of Directors d. You have ownership of a portion of the company and receive coupon payments from the issuer 16. Why are Index Funds such a popular investing option? a. They are a mix of 2-3 individual stocks that can help you diversify your portfolio b. They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500 c. They are actively managed by a fund manager d. They are managed by robo-advisors that guarantee higher returns than the overall stock market 17. 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% www.ngpf.org Last updated: 9/6/22 5 Short Answer 1. Identify two factors that can influence an individual company’s stock price. 2. Josie is trying to start investing.. What are 2 questions that she should consider during her research? 3. Explain why it is important to start saving for retirement when you’re young, even though retirement is likely decades away. www.ngpf.org Last updated: 9/6/22 6