Investment Test Review

Which person is investing rather than saving?

• Lola puts her $5000 bonus in a money market account.

• Anna buys 5 shares of Google stock.

• James puts $2,500 aside for a vacation.

• Brian puts $2,000 in a certificate of deposit at his bank.

Putting cash aside for emergencies is an example of:

• saving

• investing

Putting money in long-term accounts to grow for retirement is:

• saving

• investing

The average savings return on investment is:

• 0-2%

• 2-4%

• 4-6%

• 6-8%

The average annual return on investments is:

• 2-4%

• 4-6%

• 6-10%

Interest that is made of principal alone:

• simple interest

• compound interest

Interest earned off the principal and accumulated interest is:

• compound interest

• simple interest

Why is diversification important to an individuals' investment portfolio?

• it eliminates the risk of investing

• it reduces the risk of investing

• it gives you a higher rate of return

• it guarantees you don't lose money

How do investors make money on stocks?

• investors make interest on their stock investment

• investors make money by selling their stock for a lower price than their original investment

• investors make money by earning dividends and/or selling their stock for a higher price than their original investment

Investment analysts say it is important to understand the risk tolerance you will allow before you start investing because:

• if you have a higher risk tolerance level, you are eligible for lower investment fees.

• if you have a low risk tolerance you shouldn't invest at all

• it helps investors understand the risk and create a portfolio that matches what they are comfortable with

• if you have a high risk tolerance level, you should not invest in the market