TEST - INVESTING – UNIT TEST

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

• Investing is always a less risky option than saving

• Investing is best for short-term situations like emergency funds; saving is best for the long-term

• Investing typically earns between 1-2% while saving generally earns between 5-7%

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

Which of the following statements is TRUE about compound interest?

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

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

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

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

What kinds of behaviors can PREVENT people from making smart investing decisions?

• Staying calm when the market is experiencing a downturn

• Buying stocks when prices are low and selling them when they’re high

• Exiting the market because that’s what everyone else is doing

• Investing in a diversified portfolio instead of trying to beat the market

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?

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

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

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

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

Which of the following accurately describes the difference between an individual bond compared to a bond fund?

• A bond pays you dividends while a bond fund pays you regular interest

• A bond guarantees you a higher rate of return than a bond fund

• A bond is issued by a company while bond funds only invest in government bonds

• A bond is considered to be a less diversified investment than a bond fund.

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

• ETFs are traded once a day after the market closes

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

• Actively managed ETFs have very low fees

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

• Loss of $800

• Profit of $350

• Loss of $450

• Profit of $800

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

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

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

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

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

Why is diversification a recommended investment strategy?

• Investing in a diversified portfolio guarantees that you won’t lose money with your investments

• If you tell your fund manager to use diversification, they’ll charge you lower fees

• Diversifying your portfolio helps reduce risk

• If you diversify your portfolio, you will definitely earn a high return

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

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

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

• Dollar-cost averaging is advantageous because earnings are untaxed

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