Quiz 11 Wealth Mngmnt (FI:077, PD:313, PD:309)

Which of the following most accurately describes the relationship between risk and return:

The statement, "For the potential of a high return, you usually accept a high risk," describes the relationship between risk and return. Higher risks usually bring higher returns. Lower risks usually bring lower returns. Every investment has some risk—none are risk-free. It would be unwise to take a high risk for something that might bring a low return. And, it is nearly impossible to find a high-return investment that requires only a low risk. SOURCE: FI:077 SOURCE: QS LAP 32—Risky Business? (Types of Investments)

Which of the following is often considered one of the safest types of investments:

These bonds are issued by various levels of government, from the local to the national level. Government bonds are considered one of the safest types of investments because they are backed by the government. Although government bonds do not pay high interest rates, they are safe and a good investment for individuals who cannot afford to risk losing their investment. Penny stocks are very inexpensive, but their value can go up or down quickly. Commodities and precious metals are considered high risk investments because of the fluctuations in price and value. SOURCE: FI:077 SOURCE: Kapoor, J.R., Dlabay, L.R., Hughes, R.J., & Hoyt, W.B. (2005). Business and personal finance (pp. 315-319). New York: Glencoe/McGraw-Hill.

Which of the following is an example of an ownership investment:

When people buy a company's stock, they are, in effect, becoming an owner of a piece of that company. Certificates of deposit, money market accounts, and savings accounts are examples of lending investments. SOURCE: FI:077 SOURCE: QS LAP 32—Risky Business? (Types of Investments)

With a lending investment, investors do which of the following:

With a lending investment, investors allow borrowers to use their money for a price. The extra money received provides the motivation for lending. With any investment, an investor might decide to hire a financial advisor. No investment avoids risk altogether. Money market accounts (specific lending investments) sometimes require investors to maintain a minimum amount of money in the investment. SOURCE: FI:077 SOURCE: QS LAP 32—Risky Business? (Types of Investments)

With an ownership investment, investors do which of the following:

With an ownership investment, investors pay for the right to own something. When they do this, they may buy a home to live in, collect popular items, or even invest in multiple corporations through stock mutual funds. SOURCE: FI:077 SOURCE: QS LAP 32—Risky Business? (Types of Investments)