Fool Proof Module 17 Review

What ROI will you need to double your money in 6 years? A 12%. B 15%. C 9%. D 10%.

A 12%.

If you are saving money to buy a house in eight years your "time horizon" is: A Eight years. B Seven years. C Seven and a half years. D Ten years because of house expenses.

A Eight years.

Certificates of deposit insured by the NCUA or FDIC are: A One of the safest and easiest investments. B High risk and high return. C Moderate risk. D Always identified by a paper certificate.

A One of the safest and easiest investments.

Which choice defines the value of the things you have to give up when making a decision? A Opportunity cost. B Patience. C Economic cost. D Marginal cost.

A Opportunity cost.

What is the main risk you face when you buy stocks as investments? A The value of your investment fluctuates with the profits and losses of the company and you have virtually no control over that fluctuation. B You can only sell your stock back to the company when the stock has lost value. C Your stock can be bought and sold by the company without your approval. D The stock value will only increase when the business makes a profit.

A The value of your investment fluctuates with the profits and losses of the company and you have virtually no control over that fluctuation.

According to FoolProof, what is the main reason most people don't invest on a regular basis? Choose the most correct answer. A They don't have an investment goal. That's why goal-setting is such an important part of any savings or investing plan. B They don't have friends who invest. C They are bored by investing. D They don't believe investing makes sense.

A They don't have an investment goal. That's why goal-setting is such an important part of any savings or investing plan.

What ROI will you need to double your money in 12 years? A 7%. B 6%. C 5%. D 9%.

B 6%.

"Rate of Return," "Return on Investment," and ROI all mean the same thing. Which answer best describes these terms? A ROI is the amount of money returned to you if you ask for it within the first year of investing it. B ROI is the amount of profit you receive from your investment, usually measured as a percentage of your investment. C ROI is the dollar amount you invest compared to the stock market's fall. D ROI will always match the Rule of 72 formula.

B ROI is the amount of profit you receive from your investment, usually measured as a percentage of your investment.

Using the Rule of 72, how many years would it take to double your money if your ROI is 4%? A 16 years. B 22 years. C 14 years. D 18 years.

D 18 years.

What answers apply to "mutual funds"? A They might be smart investments for all young people. B Mutual funds contain a combination of different types of stocks. C Mutual funds are commonly found in retirement accounts. D All of the above.

D All of the above.

Which choice best reflects why some people consistently make bad investments? A They didn't do their homework on the investment and therefore didn't understand the risk. B They believed the person trying to sell them an investment rather than doing independent research to confirm that person's information. C They let emotion rather than common sense rule their decisions. D All of the above.

D All of the above.

Which of these are examples of opportunity cost? A You skip buying new jeans and put the money in your college fund. B You deposit your entire paycheck in your investment account instead of cashing it and taking your buddies out to eat. C You bring your lunch to your part-time job instead of spending $8 on lunch. You put the $8 in your savings account. D All of the above.

D All of the above.

Which statements indicate smart steps for the first-time investor? A Start making "opportunity cost" decisions now! Start giving up something nice now for something a lot better later. B When you get your first credit card, do not use that credit card to regularly finance any purchases! C Never invest more than you can afford to lose. D All of the above.

D All of the above.

Which one of the following are examples of unnecessary debt? A You buy an expensive new car rather than a perfectly good used car. B You buy your groceries on Friday instead of coupon Monday. C You charge clothes you don't really need on a high-interest store credit card. D Both A and C.

D Both A and C.

Generally, higher risk means you will have a lower rate of return on your investments. True False

False

The amount of risk you are willing to take in investments is defined specifically as "risk premium." True False

False

A good question to ask yourself when you are deciding if you should put money into savings or investments is "when will I need the money?" True False

True

Liquidity is the amount of cash you have plus any other assets that you can quickly convert into cash. True False

True

Unnecessary debt, like debt on credit and store charge cards, can destroy your investment opportunities. Why? Because you pay more in interest on your debt than you could make on your investments. True False

True

You bring your lunch to your part-time job instead of spending $8 on lunch. You put the $8 in your savings account. This is an example of opportunity cost. True False

True

You should look at your "time horizon" when deciding to put money into a savings account or an investment account. True False

True

What is "principal"? A The amount you earn on an investment. B The original money invested. C The interest on interest earned. D None of the above.

B The original money invested.

Which answer best defines "opportunity cost"? A What it costs to take advantage of a great savings opportunity. B The value of the things you have to give up to get something else. C The amount you have to pay to do something. D The amount a seller paid to sell you a product.

B The value of the things you have to give up to get something else.

What is "compound interest"? A Interest that is accumulated over a period of time but only occurs in a passbook savings account. B When you earn interest on the interest you have already made. C When you earn interest on only the principal. D When you earn interest on the difference between the principal and interest

B When you earn interest on the interest you have already made.

Which one of these is an example of unnecessary debt? A You buy a perfectly good used car instead of an expensive new car. B You buy your groceries on Friday instead of coupon Monday. C You charge clothes you don't really need on a high-interest store card. D You save up all year to take a great surfing vacation.

C You charge clothes you don't really need on a high-interest store card.

Why do many experts recommend longer "time horizons" if you are making high-risk investments? Choose the most correct answer. A If you have a longer time horizon you are capable of making more in interest in that time period. B A longer period of time gives you the opportunity to learn more about investing. C A longer time horizon means you have more time to recover any investment losses. D If you have more years you will always make better investment choices.

C A longer time horizon means you have more time to recover any investment losses.

One of the safest and easiest investments for young people is: A Stocks and Bonds. B Mutual funds. C NCUA or FDIC Insured certificates of deposit. D Bingo.

C NCUA or FDIC Insured certificates of deposit.

The compensation for investors who tolerate extra risk is called: A Cost of goods sold. B Rate of return. C Risk premium. D Opportunity costs

C Risk premium.

In finance, what is the "time horizon"? A The length of time it takes to graduate from high school. B The length of time it takes to order a pizza for delivery. C The length of time that you plan on saving before liquidating your assets in order to purchase something. D The length of time it takes to graduate from college.

C The length of time that you plan on saving before liquidating your assets in order to purchase something.