Personal Finance and Investing Review
What kinds of behaviors can PREVENT people from making smart investing decisions?
Exiting the market because that's what everyone else is doing.
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 a company.
Which of the following accurately describes a difference between an individual bond compared to a bond fund?
A bond is considered to be a less diversified investment than a bond fund.
Why is diversification a recommended investment strategy?
Diversifying your portfolio helps reduce risk.
Daniel has saved $2,000 in a savings account that has earned 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 following 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.
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.
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 adviser might be that ________.
You may not be able to get advice from a human financial adviser when you want it.
Explain three key difference between index funds and mutual funds:
A.) Index funds are passive investments while mutual funds are active investments (managed by an investor) B.) Index funds generally have lower fees than mutual funds because there is n human fund manager C.) Index funds will match the returns of the index it is following, while mutual funds aim to beat the return of the index (HOWEVER most fund managers are not able to do this!)
Why is it important to start saving for retirement when you are young?
A.) Starting early allows you to take advantage of the power of compound interest B.) You build a habit of saving for retirement early on C.) You have more time to ride the highs and the lows of the stock market
What are factors that can influence an individual company's stock price?
A.) Supply and demand B.) News about the company (e.g. executive leaving/beaing hired, strategy changes, new products, etc.) C.) Anticipation about upcoming events (e.g. changes in legislation, regulations, natural disasters, etc.) D.) Stock splits (DOES NOT change that value of the company but impacts the price of each share of stock)
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.
Which of the following is a characteristic of dollar-cost averaging?
Dollar-cost averaging is a way to decrease your risk.
An actively managed mutual fund ________.
Is managed by a fund manager who charges a fee.
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 StreamingVideoCo for $45 per share. Two months later you sold 10 shares of stock for $80 per share. What was your profit or loss on StreamingVideoCo stock? (ASSUME that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.)
Profit of $350
