Investing - Unit 3 Test

First Name:

Last Name:

Class:

• Block 2
• Block 4
• Block 6

1. 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

2. 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

3. 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

4. Michael decided that he needs to start investing in retirement, but isn't really sure when he needs to start. What advice would you give him?

• Start as soon as he can.
• Wait until his job recommends that he should start investing.
• Wait until he has been promoted at least one time at his current job.
• Wait until he has saved at least $2,000.

5. Which of the following accurately describes a 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

6. By the end of a bond's maturity, the investor will have received…

• Only the face value of the issued bond
• Half the face value of the issued bond and interest payments
• Only interest payments
• The face value of the bond issued and interest payments

7. You bought 10 shares of stock in StreamingVideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. What was your profit or loss on StreamingVideoCo stock? (Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.)

• Loss of $800
• Profit of $350
• Loss of $450
• Profit of $800