Financial Literacy Mid-Term

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

Hiring an investment manager who you think can beat the market

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 retirement account is an investment option for ANY young person?

Traditional IRA

One difference between bonds and bond funds is...

A bond fund can help you diversify your investment portfolio

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

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

Which of the following statements BEST describes investing?

Buying assets, like stocks, with the intention to hold them and grow your wealth over the long term

All of the following are risks of owning an individual stock, EXCEPT

Demand could unexpectedly increase for your company's stock

401(k)s and IRAs are both...

Investment accounts that you can open to help you invest for retirements

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

An investor can best harness the power of compounding by doing all of the following, EXCEPT...

Making frequent trades

Which of the following statements about the stock market is true?

Over time, the stock market averages 6-7% growth per year.

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

How can you make money from investing in a stock?

Sell the stock for more than your purchase price

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

All of the following are reasons to invest, EXCEPT...

To earn a consistent rate of return with lower risk than typical savings accounts

All of the following are advantages of a 401(k), EXCEPT...

You can invest your 401(k) into a wider variety of asset types than you can with an IRA