CH. 14-17 practice

Why is investing in a single company stock more risky than investing in a mutual fund?

The mutual fund investment is diversified over many companies so that the failure of one does not lose all your money.

Which is not a Biblical perspective on investing

Spend first and save later

The Millionaire's Secret is to

Spend less than you earn and invest the savings

The amount of time that your money is invested will impact your investment earnings. Which strategy is better for a retirement account as far as amount? Assume you have a job but no emergency fund. Your answer should not be based on 'your feelings' but on investment principles.

Start investing $3,000/ year at age 21 in stock mutual funds and invest $3,000/year for 9 years and then stop investing any additional money but leave the money in the investment account until age 65.

Why is it especially risky to buy stock of company with a high debt load?

If the company cannot make the payments on the debt, then the bank may take over and you will lose your investment.

The rate of return (% return) that you earn impacts your investment earnings. For your long term savings, which is the best strategy? Assume you have a job but no emergency fund. Your answer should not be based on 'your feelings' but on investment principles.

Invest in the stock market taking more risk of losing money in the short term.

Which of the following would not be considered 'gambling'

Investing in stock mutual funds on a monthly basis

Open the Time Value of Money spreadsheet see tab called invest $3,000 every year-- also found in Class 27 materials. This illustrates how the rate of return (% return) impacts your investment earnings. Assume that you decide to takes more risk and invest $3,000 every year in a total stock market index mutual fund which has averaged 10% return over many years. You leave it invested despite the up and down fluctuations. Your friend wants to take less risk. He decides to invest in bond funds which have less fluctuation but only average 6% return. Approximately how much more than your friend will you have in your retirement account at age 65?

$1,500,000

This illustrates how principal (the amount that you invest) impacts your earnings. Open the Time Value of Money spreadsheet. Assume you inherit $50,000 at age 21 and buy a truck rather than investing in the stock market. If you invest the entire amount in the stock market at that time and leave it invested there until you reach age 65 (assuming investments in the stock market continue to earn an average of 10% per year), approximately how much will be in your investment account at age 65?

$3.6 million

This illustrates how the amount of time that your money is invested will impact your earnings. Open the Time Value of money spreadsheet -- tab Investor A vs B vs C. Investor A starts investing $3,000/ year at age 21 withot stopping untl age 65. Investor B starts investing $3,000 at age 21 and invests $3,000/year for 9 years and then stops investing any additional money. He leaves the money in the investment account. Investor C doesn't start until age 30 and invests $3,000/year for the stops investing at age 65 (retirement). All 3 investors earn average of 10% per year. and neither takes any money out of the investment account. Comparing A and C, investor A has approximately how much more retirement savings at age 65?

$600,000

Which of the following is a realistic achieveable average return per year goal for long-term investing?

10%

Your friend Carson is starting a new photography business that specializes in photographs of Central Park in New York City. Because his business is new and risky, he is unable to obtain a loan from the local bank. On June 21, 2013, you agree to pay a price of $4,000 for a bond from Carson. You will receive $5,000 in return on June 21, 2014.

25%

Long term Investing begins at what level of the investment hiearchy

4

Rebecca has saved $12,000 for her college expenses by working part-time. Her plan is to start college next year and she needs all of the money she saved. Which of the following is the safest place for her college money?

A bank savings account

The probability of the loss of wealth is greatly reduced when your investment strategy has

A long term perspectiveThe random walk theory of stock prices indicates that

A mutual fund is

A method of pooling money for investments

While risk tolerance might be heavily dependent on personality, risk capacity is based more on circumstances? Which of the following is most likely to have the lowest risk taking capacity in investing?

A retired manger with no income except from Social Security and accumulated savings.

If you don't invest your money in some higher risk alternatives as a young adult, what type of risk are you taking

A risk that high inflation will take away you money's purchasing power

A 401k is

A tax-deferred savings plan offerred by employers

Which of the following is true of stocks?

Both a and b are true. (Stock ownership is risky because the investor can never be sure what return they will earn or what the value of their stock holdings will be in the future.) (The riskiness of stocks is one reason why their average rate of return has been higher than investments like bonds that guarantee a specified nominal amount in the future.)

If you need the money in less than 5 years, you should invest in

Cash equivalents

Whcih of the follwoing would not be classified as an investment?

Diamond engagement ring

Compounding means to

Earn interest on interest already earned as well as the principal

The average investor

Earns 1/2 the return that the overall stock market earns because the average investor frequently operates on emotion.

Principal or the amount that you invest impacts your investment earnings. Assume you inherit $50,000 at age 21. Which of the following strategies would be the best for a person with a long term perspective but whose car has broken down and who needs transportation to get to work? Assume you have a job but no emergency fund. Your answer should not be based on 'your feelings' but on investment principles.

Give $5,000 (10%). Save $5,000 (10%) for an emergency fund. Buy a used car for $12,000. Invest $28,000 in a mutual fund

The 10-10-80 plan means

Give 10%, save 10%, and then spend the rest of your income

A college student would most likely be advised to use which of the following as a long-term investment?

Growth Stock mutual fund

The Growth stock fund is shown below on the risk scale

Higher than average returns

Which of the following would be the lowest risk?

Money market fund

Which one of the following investment types is not likely to have up and down cycles?

Money market funds

Which of the following investments would be easiet to get started if you only had $1,000 to invest?

Mutual funds

In which situation should you start investing before you pay off your high interest credit card balance?

Never

How are risk and return related?

Positively, higher returns means higher risk

Which of the following is not one of the factors determining your investment increase?

Price Earnings ratio (P/E)

Which of the following would be "steady walk" investing?

Putting $200 a month into a mutual fund every month no matter what the the stock market is doing

Which of the following is not "steady walk" investing?

Putting 50% of your savings into a stock because your neighbor said that he is making a lot of money on it

What is common to all types of investments?

Requires postive cash flow margin

Which of the following is not one of the advantages that a stock mutual fund offers a small investor

Risk free investing

What advantage do money market mutual funds offer over other types?

Safety

Which of the following will reduce the risk accompanying equity (stock) investments?

a. the purchase of shares of a mutual fund that holds the stocks of many diverse corporations b. the purchasing and holding of equities over a lengthy period of time c. the purchase of shares in firms doing business in a wider variety of industries and markets Correct (all of the above)

The random walk theory of stock prices indicates that

current stock prices already reflect information about factors influencing future stock prices that can be forecast with any degree of accuracy.

Assume that Bill is interested in buying a computer. Right now, interest rates are very high, but he believes they will soon start to fall. If Bill purchases the computer today, we know that

he had a strong, positive rate of time preference.

Why does the investing behavior gap exist?

nvestors make decisions based on emotions of greed and fear

If we want to produce more capital goods during the present time period, we must

reduce current consumption.

Investing is

the use of money for the purpose of making money

Which of the following is not a Biblically acceptable reason for investing?

To be the wealthiest person in SC

The most effective way to reduce your investment risk is

To diversify or spread your investment over multiple comapnies.

What is the primary objective of an equity index mutual fund?

To invest in a set of stocks so that the return mirrors an overall market index

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

When held over lengthy periods like 30 or 40 years, historically, the rate of return on stocks has been both higher and less variable than that of bonds.