finance investing test

When talking about investing, what does it mean when someone refers to a fund?

A pool of money from shareholders that is used to invest in a collection of assets like stocks and bonds

You've decided you want to sell a bond before its maturity date. Interest rates are currently higher than when you bought the bond. What will you likely have to do to make your bond more appealing to investors?

Sell your bond at a discounted price

What is default risk?

The risk that the company or government is unable to pay back the investor.

Leaving your investments in the stock market alone for at least five years is a good way to reduce risk because...

It keeps you from reacting to dips in the market and selling at too low of a price

One difference between bonds and bond funds is...

A bond fund can help you diversify your investment portfolio

Briefly explain what's involved in the steps of opening a brokerage account:

Apply: you have to be 18 or older to complete the application Initiate a deposit: you link your bank account Verify a transaction: you will deposit some money and let your broker know that you have put money in

All of the following are true about bonds EXCEPT...

Bonds are considered a riskier investment option than stocks.

All of the following are strategies to reduce risk EXCEPT...

Hiring an investment manager who you think can beat the market

Do you think you would invest in an individual bond or bond fund? Both? Neither? Explain why.

I think that I would invest a little in both so the risk is balanced out and if I am going to lose money I don't lose too much.

Do you think you would want to invest in a passively managed fund or an actively managed one? Why?

I would want to invest actively because I have a professional taking care of my money and I don't have to worry about taking care of my money.

The video mentions that diversification doesn't guarantee that if one investment goes down, another will go up to make up for it. Why is it still a good idea to diversify your investments?

It is likely that you will be less affected with your losses and risk can not be eliminated but diversification reduces your risk.

Which of the following is a characteristic of a brokerage account?

No penalties for withdrawing your money

Describe how online brokerage accounts differ from managed brokerage accounts.

Online brokerage accounts differ from managed brokerage accounts because you are the one who is managing an online brokerage account whereas a professional will be managing a managed account.

Amita wants to invest in a fund and choose a few individual stocks and bonds to invest in. Is she allowed to do this? Or, does she have to choose one or the other?

She is allowed to do this bcause it is a way to be able to diversify your portfolio.

In your own words, explain the difference in how a brokerage account functions compared to a normal bank account.

The difference between a brokerage account and a normal bank account is that a brokerage account is used to buy and sell securities such as stocks, bonds, mutual funds and ETFs. A normal bank account is used to save your money or to put your money into a place where it can be held.

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

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

The goal of an actively managed fund is to outperform the market. What does this mean?

The fund is managed by a fund manager, who tries to beat the overall market's rate of return

Which type of bond would you be comfortable investing in? Explain.

The type of bond that I would be comfortable investing in is government bonds because they are issued by large, stable,and national entities which are usually with less risk even though there is less interest on the money.

Even though risk seems like a bad thing, why is that not always the case with investing?

This is not always a bad thing because with higher risk comes higher profit in investing.

Explain what it means to diversify across investments.

This means to buy different company stocks having a bond and a bond fund.

All of the following are recommended strategies for beginner investors EXCEPT...

Try to pick winning stocks and beat the market

Explain what it means to diversify by asset class.

When you divide your money into a different class.

What does it mean when someone says "Good investing is boring"?

You're better off making long-term investments that don't require

Which of the following most accurately describes what a bond is?

A bond is an investment in which an investor lends money to a corporation or government with the expectation that it will be paid back with interest

In your own words, describe how investing in a fund is a more diversified approach than investing in a single stock or bond.

Investing in a fund is a more diversified approach than investing in a single stock or bond because when you invest in a fund there are multiple categories that you are investing in and when you invest in just one stock it is just one company that you have put your money into.

All of the following are true about a passively managed fund EXCEPT...

Passively managed funds are managed by a fund manager

Which of the following is an example of diversification?

Purchasing shares of stock in a variety of companies and industries

Which tends to be a riskier investment - corporate bonds or government bonds? Why?

The one that tends to be a riskier investment is corporate bonds because they are less stable and have a high yield.

Juan buys a bond with a fixed coupon rate of 3%. Six months later, similar bonds that are issued have a coupon rate of 4%. Which of the following is TRUE if he chooses to sell the bond before maturity?

The price of Juan's bond will decrease

The final section is titled "Remember, Good Investing Is Boring". Explain what this means to you and whether this affects your enthusiasm for investing.

This means to me that you should trust the process. This affects my enthusiasm by making me want to wait for my money to grow.

In your own words, explain the three strategies the video suggests using to manage risk.

Time: invest for at least 5 years to avoid the decisions of pulling it out Diversification: investing in more than one company, and invest in more than one asset and companies like bonds,stocks,etc. Invest over time: you should buy your shares over time so you can get it for higher or lower.

How can too little risk affect your investing experience?

Too little risk affects your investing experience because you might not be gaining that much money and it might be boring.

How can too much risk affect your investing experience?

Too much risk can affect your experience because you might loose too much money and not gain any and have too much anxiety.