Econ test #2

1. Which of the following statements BEST describes the stock market? Businesses listing their entire company for sale Businesses selling partial ownership of their companies to raise capital Investors buying stock in hopes of being hired by companies People making donations to companies that need funding

Businesses selling partial ownership of their companies to raise capital

Over time, the stock market has... Experienced highs and lows but increased in overall value Had slight ups and downs but stayed about the same in value Rarely experienced changes and has maintained the exact same value Gone through severe ups and downs with an overall decrease in value

Experienced highs and lows but increased in overall value

1. In retirement, it's common to rely on income from all of the following sources EXCEPT... a. Social Security b. Pension Income c. Government loan d. Investment Income

Government loan

With micro-investing, you are...

Investing small amounts of money consistently into the market

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

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

Investors report this as being one of the biggest downfalls of robo- advisors when compared to human managers:

Lack of personal touch

2. Which of the following statements is TRUE about the state of retirement in the U.S.? a. Most Americans are able to retire at their full retirement age b. Many retirees are able to support themselves on Social Security payments alone c. The majority of employers offer pension plans for workers d. Many people may need to invest to build wealth and to support themselves in retirement

Many people may need to invest to build wealth and to support themselves in retirement

During a BULL market... Investors are pessimistic about how the stock market will perform The economy is not doing as well More investors are buying stocks, which causes stock values to increase The unemployment rate in the country increases

More investors are buying stocks, which causes stock values to increase

Which of the following BEST explains how a spare-change app works to *1/1 invest your money?

The app rounds up purchases you make through your bank account and automatically invests your change

Which type of retirement account is an investment option for ANY young *1/1 person?

Traditional IRA

All of the following are advantages of a 401(k), EXCEPT... - You don't pay taxes on your investments' growth each year - You can invest your 401 (k) into a wider variety of asset types than you can with an IRA - Your employer may match some of your 401(k) contributions - You can contribute more money into a 401(k) than into an IRA

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

3. An investor can best harness the power of compounding by doing all of the following, EXCEPT... a. Making frequent trades b. Starting to invest early c. Reinvesting earnings d. Minimizing risk

a. Making frequent trades

Which of the following is an example of diversification? a. Putting the majority of your money into a savings account and investing the rest b. Investing different amounts of money every month c. Purchasing shares of stock in a variety of companies and industries d. Using multiple investment managers to get different opinions

a. Putting the majority of your money into a savings account and investing the rest

1. What does it mean when someone says "Good investing is boring"? a. There should be little to no change in how your portfolio performs b. You should avoid talking to anyone about how your investments are performing c. You're better off making long-term investments that don't require day-to-day management d. You should avoid checking how your investments are doing for at least 10 years

a. There should be little to no change in how your portfolio performs

All of the following are recommended strategies for beginner investors EXCEPT... a. Try to pick winning stocks and beat the market b. Recognize cognitive biases that may be influencing your decisions c. Minimize expense ratios to cut back on costs d. Choose your investments based on your risk tolerance

a. Try to pick winning stocks and beat the market

One difference between bonds and bond funds is... a. Buying an individual bond is generally cheaper than buying a bond fund b. A bond fund can help you diversify your investment portfolio c. Bonds pay dividends to its investors d. You receive the principal amount you invest in a bond fund after a certain amount of time

b. A bond fund can help you diversify your investment portfolio

1. When talking about investing, what does it mean when someone refers to a fund? a. A type of savings account that you can use for emergency expenses b. A pool of money from shareholders that is used to invest in a collection of assets like stocks and bonds c. A way to crowdsource money from people online to help pay for an expense d. An amount someone has in their checking account

b. A pool of money from shareholders that is used to invest in a collection of

What is a stock? a. A measurement of a company's profits b. An investment option that allows you to own a small piece of a company c. An annual report that includes details about a company's leadership and earnings d. A low-risk savings option that can help you build an emergency fund

b. An investment option that allows you to own a small piece of a company

Which of the following is TRUE about a stock split? a. Stock splits impact the overall value of a company b. Stock splits decrease the number of shares you own c. Stock splits indicate that a company is doing poorly d. Stock splits make a stock more accessible to a greater number of investors

b. Stock splits decrease the number of shares you own

Eli is planning ahead for retirement. They should consider all of the following factors when determining how much they'll need in retirement EXCEPT... a. What age they plan to retire b. The current balance in their checking account c. The lifestyle they want to lead in retirement d. How much money they expect to receive through Social Security

b. The current balance in their checking account

1. All of the following are reasons to invest, EXCEPT... a. To minimize the impact on inflation, which causes you to lose purchasing power b. To earn a consistent rate of return with lower risk than typical savings accounts c. To build wealth by reinvesting your returns and allowing them to compound d. To earn higher average rates of return than you would in a typical savings account

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

All of the following are true about a passively managed fund EXCEPT... a. Fees for a passively managed fund are typically lower than those for an actively managed fund b. Passively managed funds are generally seen as low risk investments c. A passively managed fund guarantees the average return of the securities it includes d. Passively managed funds are managed by a fund manager

c. A passively managed fund guarantees the average return of the securities it includes

Leaving your investments in the stock market alone for at least five years is a good way to reduce risk because... a. It allows your investments to earn more interest b. It keeps you from reacting to dips in the market and selling at too low of a price c. Fees are waived for investments held for over five years d. You get a bonus from the company if you invest for five years

c. Fees are waived for investments held for over five years

All of the following are strategies to reduce risk EXCEPT... a. Holding your investments for at least five years b. Making sure your investments are diversified c. Hiring an investment manager who you think can beat the market d. Investing small amounts of money over longer periods of time

c. Hiring an investment manager who you think can beat the market

Which of the following is a characteristic of a brokerage account? a. Typically no capital gains tax b. Limits on how much you can invest c. No penalties for withdrawing your money d. Require a large amount of money to open an account

c. No penalties for withdrawing your money

The goal of an actively managed fund is to outperform the market. What does this mean? a. The fund is guaranteed to provide a rate of return that is lower than the overall market b. The fund will match the overall return of the market c. The fund is managed by a fund manager, who tries to beat the overall market's rate of return d. If the actively managed fund does not beat the market, the fund manager will pay you the difference

c. The fund is managed by a fund manager, who tries to beat the overall

2. When reading a stock quote, which of the following metrics would give you the best idea of the total value of the company? a. The stock ticker symbol b. The price change of the stock, quoted as a percentage c. The market cap d. The stock's opening and closing price for that day

c. The market cap

Which of the following most accurately describes what a bond is? a. A bond is a government loan made to an individual investor with the expectation that it will be paid back with interest b. A bond is an investment in which a corporation lends an individual investor money with the expectation that it will be paid back with interest c. A bond is a government loan made to a corporation with the expectation that it will be paid back with interest d. 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

d. 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

2. Which of the following statements BEST describes investing? a. Putting $100 per month into an FDIC-insured bank account for short-term goals b. Buying and selling stocks within the same day to take advantage of short-term price variation c. Reducing the purchasing power of your money over time d. Buying assets, like stocks, with the intention to hold them and grow your wealth over the long term.

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

2. 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? a. The price of Juan's bond will increase b. More investors will be willing to buy Juan's bond c. The interest rate of Juan's bond will increase to reflect the current market d. The price of Juan's bond will decrease

d. The price of Juan's bond will decrease