Financial math Mid term
Why is diversification a recommended investment strategy?
Diversifying your portfolio helps reduce risk.
What kinds of behaviors can PREVENT people from making smart investing decisions?
Exiting the market because that's what everyone else is doing
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 a company
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.
A market in which prices are falling, encouraging selling.
bear market
A market in which there is increased stock trading and rising stock prices
bull market
The practice of investing in a large variety of stocks, bonds, and/or funds as a way to as a way to reduce your overall risk
diversification
Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis
dividend
Which is the most risky investment?
individual stocks
Degree of uncertainty on how likely the investor is to make money on an investment
risk
If you wait until you are 30 to start investing how much will you have at retirement assuming all other aspects stay the same ^ (previous question)
1.5 million
You are currently 20 years old. You have no savings. You make $50,000 a year. If you contribute 15% of your check each month.. How much does the calculator estimate you will HAVE at retirement?
2.39 milkion
Sarah bought 30 home depot stocks for $25 each. Later, she sold them at a share price of $33 a piece. What is her profit?
240
Sarah bought 30 home depot stocks for $25 each. Later, she sold them at a share price of $33 a piece. What is her return on investment?
32%
Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?
A TDF will automatically adjust his asset allocation based on the retirement year he has chosen
How is a bond different from a stock?
A bond is a loan you give to an organization while a stock is partial ownership in the company.
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've already earned
Reinvesting earned interest back into the principal to allow money to grow exponentially over time
Compound intrest
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? (IRA=Individual Retirement Account)
Contribute the full $150/mo to the 401 (k) because her company will match that full amount, "doubling" her investment every month
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
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
Which of the statements below BEST describes the relationship between risk and return when considering an investment?
Investors expect to earn a higher return when they invest in a high risk asset
Geraldo reviews his brokerage statement and sees the following two mutual fund investments that he made a year ago. ActiveFund20 had an average return of 7.0% per year and an annual fee of 1%. PassiveFund500 had an average return of 6.5% per year and an annual fee of 0.1%. Which investment had a better return for Geraldo (net of fees)?
PassiveFund500: It had an overall return of 6.4% while ActiveFund20 had an overall return of 6.0%
Nancy is new to investing and is 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
You bought 10 shares of stock in Apple 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 Apple stock?
Profit of 350
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
How can someone make money from investing in a stock?
They receive dividends from the company they bought the stock in and/or they sell the stock at a higher price than what they bought it for.