Investing Written Exam Review

2. Which of the following statements is TRUE about compound interest?

• 1. Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts

• 1. Compound interest means you have a fund manager who is compounding your returns without charging a fee

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

• 1. Compound interest directly impacts how much you will be charged in fees

Tags

CCSS.7.RP.A.3

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?

• 1. His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation

• 1. His purchasing power will INCREASE because the interest rate is higher than the historical rate of inflation

• 1. His purchasing power will INCREASE because the interest will compound faster than the historical rate of inflation

• 1. His purchasing power will remain the SAME because the interest rate is the same as the historical rate of inflation

Tags

CCSS.6.RP.A.3A

6. Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?

• 1. ETFs are traded once a day after the market closes

• 1. An ETF is a single stock that you can buy in the stock market

• 1. Actively managed ETFs have very low fees

• 1. ETF prices can change throughout the day as they are exchanged on the market

8. Which of the statements below BEST describes the relationship between risk and return when considering an investment?

• 1. Investors expect to earn a lower return when they invest in a high risk asset

• 1. Investors expect to earn a higher return when they invest in a low risk asset

• 1. Investors expect to earn a higher return when they invest in a high risk asset

• 1. Investors expect to earn zero return when investing in a low risk asset

10. Which of the following is a characteristic of dollar-cost averaging?

• 1. Dollar-cost averaging is a way to decrease your risk

• 1. Dollar-cost averaging is a strategy that only expert investors use

• 1. Dollar-cost averaging is advantageous because earnings are untaxed

• 1. Dollar-cost averaging is offered exclusively through robo-advisors

Tags

CCSS.HSS.MD.B.6

CCSS.HSS.MD.B.7

12. An actively managed mutual fund…

• 1. Generally has lower fees than a passively managed index fund

• 1. Is managed by a fund manager who charges a fee

• 1. Always performs better than an index fund

• 1. Is a mix of two types of stocks and two types of bonds to diversify your portfolio

What is a brokerage account used for?

• 1. It’s an online portal that allows you to set up appointments with a fund manager

• 1. It’s the account you use to pay any taxes you owe on money you earned on your investments

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

• 1. It’s a special type of 401(k) plan that only some employers offer

16. Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?

• 1. Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget

• 1. Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified

• 1. Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest

• 1. Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month

Tags

CCSS.6.RP.A.3B

Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?

• 1. A TDF is actively managed by a fund manager but comes with low fees

• 1. A TDF buys a single stock and bond so that beginner investors can practice day trading

• 1. A TDF is insured by the federal government, so Sam's money is protected even if the fund performs poorly

• 1. A TDF will automatically adjust his asset allocation based on the retirement year he has chosen

20. Nancy is new to investing and is eager to get started. All of the following are things she should do EXCEPT...

• 1. Invest in a low cost index fund

• 1. Estimate how much she will need for retirement to determine how much she needs to invest each month

• 1. Pick individual stocks to see if she can beat the market

• 1. Invest in a diversified portfolio