Name: Sian Thigpen Date: 11/20/24 Block:

4B

Unit 4 – Investing: End of the Unit Study Guide

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

a. Investing is always a less risky option than saving

b. Investing is best for short-term situations like emergency funds; saving is

best for the long-term

c. Investing typically earns between 1-2% while saving generally earns

between 5-7%

d. 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?

a. Compound interest is difficult to calculate, so those who use it earn higher

profits for their efforts

b. Compound interest means you have a fund manager who is compounding

your returns without charging a fee

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

d. 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?

a. Staying calm when the market is experiencing a downturn

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

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

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

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4. Which one describes a REIT?

a. A REIT is an investment in government bonds

b. A REIT involves purchasing a home with a downpayment

c. A REIT is an investment tool that allows you to invest in more than one
type of real estate

d. A REIT is an investment tool that allows you to invest in residential real

estate only.

5. Which of the following accurately describes a difference between an individual bond

compared to a bond fund?

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

b. A bond guarantees you a higher rate of return than a bond fund

c. A bond is issued by a company while bond funds only invest in government

bonds

d. A bond is a less diversified investment than a bond fund

6. Which of the following statements about Index Funds is TRUE?

a. Index Funds are traded on the stock market

b. An Index Fund is a single stock that you can buy in the stock market

c. An Index Fund is actively managed

d. The stock prices in an Index Fund are all the same

7. You bought 10 shares of stock in Streaming Video Co 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 Streaming Video Co stock? (Assume that Streaming Video Co didn't pay
a dividend and that you didn't incur any trading fees during that period.)

a. Loss of $800

b. Profit of $350

c. Loss of $450

d. Profit of $800

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

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

b. Investors expect to earn a higher return when they invest in a low-risk asset

c. Investors expect to earn a higher return when they invest in a high-risk

asset

d. Investors expect to earn zero return when investing in a low-risk asset

9. Why is diversification a recommended investment strategy?

a. Investing in a diversified portfolio guarantees that you won’t lose money

with your investments

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

c. Diversifying your portfolio helps reduce risk

d. If you diversify your portfolio, you will earn a high return

10. Which of the following is a characteristic of cryptocurrency?

a. Cryptocurrency’s value is based on the performance of a company

b. Cryptocurrency is issued and controlled by the government

c. Cryptocurrency is highly volatile

d. Cryptocurrency pays dividends

11. How is a bond different from a stock?

a. A bond is a loan you give to an organization while a stock is partial

ownership in a company

b. Bonds are typically riskier than stocks but have the potential to earn higher
returns

c. Bonds are usually issued by smaller startup companies while stocks are
issued by well-established organizations

d. Bonds are best for earning high returns while stocks are best for providing
a stable source of income

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12. An actively managed mutual fund…

a. Generally, has lower fees than a passively managed index fund

b. Is managed by a fund manager who charges a fee

c. Always performs better than an index fund

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

13. How can someone make money from investing in a stock?

a. They sell the stock for a lower price than what they bought it for

b. They receive dividends or they sell the stock at a higher price than what
they bought it for

c. The stock loses value, but the overall market experiences a positive return

d. They sell the stock for the same price they bought it for

14. What is a brokerage account used for?

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

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

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

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

15. Why is it important for you to understand your risk tolerance before you start
investing?

a. It helps you decide if you want to participate in your employer’s match

program for your 401(k)

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 b. It’s recommended that people with a low risk tolerance shouldn’t invest at
all

c. If you have a high-risk tolerance, you may be eligible for lower fees since
you won’t care if your portfolio drastically loses value

d. You should tailor your investment portfolio so that it assumes an amount of

risk you are comfortable with

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?

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

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

diversified

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

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

17. A disadvantage of using a robo-adviser might be that…

a. You are charged higher fees than if a human fund manager adjusted your
portfolio

b. You may not be able to get advice from a human financial advisor when
you want it

c. You don’t have any input as to how your portfolio is invested

d. You’ll be put on a waitlist to use the robo-adviser since there are only a
handful of them to choose from

18. Sam is 22, just started his first full-time job, and his employer is offering a 401(k)
plan that will match his contribution up to 3 percent. When should he start investing
in the 401(k) plan?

a. A year after he starts working there

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 b. In 6 months because he needs to see how much his take-home pay will be

c. Immediately so he can take advantage of matching funds

d. After he invests money in bonds

19. What is one question an investor should ask when deciding whether or not they
would like to open a Roth IRA or a Traditional IRA?

a. Do I want to make a guaranteed return of 6% or 8%?

b. Do I want to pay taxes now or later?

c. Do I want to take advantage of my employer’s matching contribution?

d. Do I want to take on more or less risk?

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

a. Invest in a low-cost index fund

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

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

a. Invest in a diversified portfolio

21. Sarah is explaining what a bond is to her younger brother. Which of the following
descriptions should she use?

a. A bond is when you have ownership in a company.

b. A bond is a government program that pools contributions from current

workers to fund retirement support benefits to those who are eligible

c. A bond is a type of retirement savings plan offered by some employers

d. A bond is a loan to a government or corporation that gives the owner

interest payments and returns the initial investment at maturity.

22. As a shareholder in a public company, what are the benefits available to you?

a. You may receive dividends from the company, if the company pays them,
and you have ownership of a portion of the company

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 b. You must receive dividends from the company (all companies must pay
them) and you can select members of the management team (e.g., the
Chief Executive Officer (CEO))

c. You can select members of the management team [e.g., the Chief
Executive Officer (CEO)] and vote for members of the Board of Directors

d. You have ownership of a portion of the company and receive coupon

payments from the issuer

23. Why are Index Funds such a popular investing option?

a. They are a mix of 2-3 individual stocks that can help you diversify your
portfolio

b. They provide a low-cost, diversified investment option that closely matches

the overall return of a given index, such as the S&P 500

c. They are actively managed by a fund manager

d. They are managed by robo-advisors that guarantee higher returns than the
overall stock market

24. You buy a bond with a fixed coupon rate of 5%. A year later, similar bonds that
are issued have a coupon rate of 3%. Which of the following is TRUE?

a. The price of your bond will increase

b. The demand for your bond will decrease

c. The price of your bond will stay the same

d. The interest rate for your bond will fall to 3%

25. Gerald reviews his brokerage statement and sees the following two mutual fund
investments that he made a year ago. ActiveFund20 had an average return (before
fees) of 7.0% per year and an annual fee of 1%. PassiveFund500 had an average
return (before fees) of 6.5% per year and an annual fee of 0.1%. Which investment
had a better return for Geraldo (net of fees)?

a. ActiveFund20: It had an overall return of 8.0% while PassiveFund500 had

an overall return of 6.6%

b. PassiveFund500: It had an overall return of 6.6% while ActiveFund20 had

an overall return of 8%

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c. ActiveFund20: It had an overall return of 7.0% while PassiveFund500 had
an overall return of 6.5%

d. PassiveFund500: It had an overall return of 6.4% while ActiveFund20 had

an overall return of 6.0%