Savings and Investing Test

Front

How does investing in the stock market differ from putting money in a savings account at a bank?

Back

Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies.

Front

Why is compound interest more advantageous than simple interest?

Back

Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned.

Front

When investing in individual stocks, you should expect that…

Back

Unforeseen company events can have a dramatic impact on the stock price for a company.

Front

Which of the statements below BEST describes the relationship between risk and return when considering an investment? Options: Investors expect to earn a lower return when they invest in a risky asset, Investors expect to earn a higher return when they invest in a low risk asset, like a bond, Investors expect to earn a higher return when they invest in a high risk asset like stock in a small company, Investors do not expect to earn a return on a high risk investment but rather expect to lose their money

Back

Investors expect to earn a higher return when they invest in a high risk asset like stock in a small company

Front

Why is diversification a recommended investment strategy?

Back

Diversifying your portfolio helps reduce risk.

Front

How is a bond different from a stock?

Back

A bond is a loan you give to an organization while a stock is partial ownership in the company.

Front

How can someone make money from investing in a stock? Options: They sell the stock for a lower price than what they bought it for., They receive dividends from the company they bought the stock of and/or they sell the stock at a higher price than what they bought it for., The stock loses value but the overall market experiences a positive return., They sell the stock for the same price they bought it for.

Back

They receive dividends from the company they bought the stock of and/or they sell the stock at a higher price than what they bought it for.

Front

What is a brokerage account used for?

Back

It’s a type of account used to buy and sell stocks, bonds, and mutual funds.

Front

Why is it important for you to understand YOUR risk tolerance before you start investing?

Back

You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with.

Front

What is a good long-term investment strategy for Elaine who has $1,000 to invest for her retirement fund? Options: Invest $800 in a stock index fund and $200 in a bond index fund, Invest $1,000 in a bond index fund, Invest $1,000 in the stock of her favorite company, Invest her $1,000 in a regular savings account earning 1% interest since it is a safe investment

Back

Invest $800 in a stock index fund and $200 in a bond index fund