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personal finance 8
| Question | Answer |
|---|---|
| How does investing in the stock market differ from putting money in a savings account at a bank? | Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies |
| 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? | Profit of $350 |
| How is a bond different than a stock? | A bond is a loan you give to an organization while a stock is partial ownership in a company. |
| 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? | Contribute the full $150/mo to the 401(k) because her company will match that full amount, “doubling” her investment every month. |
| Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use? | Social Security is a government program that pools contributions from current workers to fund retirement support benefits to those who are eligible. |
| Geraldo reviews his brokage statement and following two mutual fund investments previosly made. ActiveFund20 had an return of 7.0% year and a fee of 1%. PassiveFund500 had a return of 6.5% and annual fee of 0.1%. Which one had a better return for him? | PassiveFund500: it had an overall return of 6.4% while ActiveFund20 had an overall return of 6.0% |
| Which of the following statements is TRUE about compound interest? | Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you’re already earned |
| 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. |
| Which of the following is a characteristic of dollar-cost averaging? | Dollar-cost averaging is a way to decrease your risk |
| Why is it important for you to understand your risk tolerance before you start investing? | You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with |
| Sam is 22 just started has first full-time job, and is selecting his investments through his company’s 401(K) plan. Why might a target date fund be a good option for sam? | A TDF will automatically adjust his asset allocation based on the retirement year he has chosen. |
| 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? | The price of your bond will increase |
| What kinds of behaviors can PREVENT people from making smart investing decisions? | Exiting the market because that’s what everyone else is doing |
| Which of the following accurately describes a difference between an individual bond compared to a bond fund? | A bond is considered to be a lass diversified investment than a bond fund. |
| Why is diversification a recommended investment strategy? | Diversifying your portfolio helps reduce risk |
| What is a brokerage account used for? | It’s type of account used to buy and sell stocks, bonds, and funds. |
| 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? | Do I want to pay taxes now or later? |
| Why are index funds such a popular investing option? | They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500. |
| Which if the following statements are TRUE about exchange traded funds? | ETF prices can change throughout the day as they are exchanged on the market. |
| How can someone make money from investing in a stock? | They receive dividends or they sell the stock at a higher price than what they bought it for. |
| A disadvantage of using a robo-advisor might be that… | You may not be able to get advice from a human financial advisor when you want it. |
| Nancy is new to investing and us eager to get started. All of the following are things she should do EXCEPT… | Pick individual stocks to see if she can beat the market |
| Which of the statements below BEST describe the relationship between risk and return when considering an investment? | Investors expect to earn a higher return when they invest in high risk asset |
| An actively managed mutual fund…. | Is managed by a fund manager who charges a fee. |
| As a shareholder in a public company, what are the benefits available to you? | 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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