AnswersPersonal Finance - EL3403Investing and Financial Markets

Investing Answers

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1
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What is the relationship between risk and return?

A
A higher risk often means a higher return.
B
A lower risk always means a higher return.
C
A higher risk often means a lower return.
D
A lower risk will always mean a lower return.
2
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Which of these investments may be long term? Choose four answers.savings accountsmutual fundsbondsretirement fundscommodities

A
savings accounts
B
mutual funds
C
bonds
D
retirement funds
E
commodities
3

In what way does a 401(k) differ from an individual retirement account (IRA)?

A
A 401(k) is created through an individual’s employer.
B
A 401(k) can be created by individuals who deposit money.
C
A 401(k) allows consumers to contribute before taxes.
D
A 401(k) is a good long-term investment strategy.
4

Which investment is best for someone who is likely to need cash soon?

A
mutual fund
B
CD
C
401(k)
D
savings account
5

Which investment has the least liquidity?

A
mutual fund
B
house
C
checking account
D
small business
6

The image shows Alex’s investments in one year. Investments during One Year

Question illustration
A
He should have invested in a commodity instead of a stock.
B
He would have lost more with a higher-risk investment.
C
He most likely would have benefited by diversifying.
D
He most likely would have profited by buying more of the stock.
7

When investors purchase a commodity, they believe

A
the commodity's price will go up after purchase.
B
the bank will pay interest to the investors.
C
the investors' employer will match the cost.
D
the commodity is guaranteed to make them money.
8

What is the definition of risk?

A
putting money into more than one investment
B
amount made in profit on an investment
C
using borrowed funds for an investment
D
possibility of losing money on an investment
9

What is the definition of liquidity?

A
how difficult it is to maximize returns on investments
B
how much money someone has in a savings account
C
how easily an investment can be exchanged for cash
D
how much income someone has to invest each year
10

Why is it risky to invest in a commodity?

A
A commodity has little or no value as a long-term investment.
B
Commodity stocks cannot be traded after you purchase them.
C
The commodity's price might drop significantly very quickly.
D
The investment will tie up your money for more than one year.
11

What might convince an investor to buy stock or mutual funds?

A
belief that a company has just reached its peak popularity
B
news that a stock's price has recently increased significantly
C
belief that a small number of investors have bought the stock so far
D
news that a company is about to release a promising product
12

What is the definition of risk?

A
putting money into more than one investment
B
amount made in profit on an investment
C
using borrowed funds for an investment
D
possibility of losing money on an investment
13

The pie graph shows sources of income for people ages 65 and over in 2010.

Question illustration
A
largest source of income.
B
smallest source of income.
C
second largest source of income.
D
fourth largest source of income.
14

Which statement best describes stocks?

A
They should be purchased when prices are high and sold when prices are low.
B
They are an investment in a company’s progress and profits.
C
They are a type of investment that includes raw materials and natural resources.
D
They should be purchased only as long-term investments.
15

What is the definition of liquidity?

A
how difficult it is to maximize returns on investments
B
how much money someone has in a savings account
C
how easily an investment can be exchanged for cash
D
how much income someone has to invest each year
16

Which statements apply to a certificate of deposit (CD)? Choose two answers. It is always purchased as a short-term investment.It can be purchased from a banking institution.It is always purchased as a long-term investment.It can be purchased for almost any amount.It is purchased through an individual's employer.

A
It is always purchased as a short-term investment.
B
It can be purchased from a banking institution.
C
It is always purchased as a long-term investment.
D
It can be purchased for almost any amount.
E
It is purchased through an individual's employer.
17

How is a savings account most useful?

A
for saving for a long time without withdrawing
B
for depositing and withdrawing money frequently
C
for using money for CDs and other investments
D
for using money in the near future but not right away
18

retirementvacationsrainy daysemergencies

A
retirement
B
vacations
C
rainy days
D
emergencies
19

Someone who diversifies investments is more likely to

A
increase both risks and returns.
B
offset their losses with gains.
C
reduce both risks and returns.
D
increase liquidity of investments.
20

Which of these investments may be long term? Choose four answers.

A
savings accounts
B
mutual funds
C
bonds
D
retirement funds
E
commodities

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