AnswersPersonal Finance - EL3403Investing and Financial Markets

Investing Answers

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1
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Capital appreciation refers to

t
the increased value of an asset.
t
the ability to make a profit from owning stock.
t
the distribution of earnings to shareholders.
t
the profitable sale of shares.
2
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Since stocks can be traded online, which purpose is best served by markets?

A
Markets regulate transactions.
B
Markets are where the trades actually occur.
C
Markets sell the assets to be traded.
D
Markets ensure that the transactions are secure.
3

What can be traded in a commodities market?

A
stock
B
bonds
C
oil
D
debt
4

If a company pays dividends on a stock, does that mean that the stock has appreciated in value? Why or why not?

Y
Yes, the payment of dividends indicates that a stock’s value has increased.
N
No, the payment of dividends indicates that a company has earned profits.
Y
Yes, the payment of dividends indicates that a company’s assets have grown.
N
No, the payment of dividends indicates that a company can repay investors.
5

Which describes an investor’s primary goal of buying a loan?

A
to grow a business
B
to earn a profit off the interest
C
to bolster the economy
D
to provide capital to a business
6

Are the buying and selling of stocks centralized activities? Why or why not?

A
Yes, the New York Stock Exchange is the primary exchange for all the world’s most important trades.
B
No, people can buy stocks anywhere, and they do not need to go through a market.
C
Yes, the world’s stock markets are coordinated exchanges, and they are dependent on one another.
D
No, there are many stock markets around the world, and they are independent of one another.
7

Which term refers to the possibility of an investor losing some or all of an investment?

A
risk
B
likelihood
C
probability
D
chance
8

Which is true about investments and risk?

A
Low-risk investments have a high return over the long run.
B
High-risk investments usually fail.
C
Safe investments are always somewhat profitable.
D
Every investment carries some degree of risk.
9

Which best describes the role that government and business play in investments?

A
They both use taxes to support a country’s growth.
B
They both invest money to earn a profit.
C
They both receive capital to use for growth.
D
They both act as angel investors for start-ups.
10

Which best describes what a market index does?

A
An index measures market performance.
B
An index measures economic trends.
C
An index measures growth.
D
An index measures the performance of a single stock.
11

Which best describes how an investor makes money from an equity investment?

A
by earning interest
B
by selling the asset for a profit
C
by raising capital
D
by growing the asset
12

How do bonds generate income for investors?

A
Bonds depreciate in value.
B
Bonds protect investors from bankruptcy.
C
Bonds pay interest to the bank that sold the bond.
D
Bonds pay a specified amount to the investor at maturity.
13

Which types of investments are securities?

A
both debt and equity
B
debt only
C
equity only
D
neither debt nor equity
14

Which describes an investor’s primary goal of buying a loan?

A
to grow a business
B
to earn a profit off the interest
C
to bolster the economy
D
to provide capital to a business
15

Since stocks can be traded online, which purpose is best served by markets?

A
Markets regulate transactions.
B
Markets are where the trades actually occur.
C
Markets sell the assets to be traded.
D
Markets ensure that the transactions are secure.
16

Once stocks are on the market, which best explains how their prices are set?

A
Prices are controlled by the issuing company.
B
Prices are set by the financial market.
C
Prices follow economic trends.
D
Prices fluctuate on the basis of demand.
17

Bonds are considered to offer a guaranteed return, as they must be honored by law, but which is still a potential risk that investors face?

A
The issuer may not raise enough capital.
B
The issuer could refuse to pay dividends.
C
The issuer could go bankrupt.
D
The issuer may not make a profit.
18

Capital appreciation refers to

A
the increased value of an asset.
B
the ability to make a profit from owning stock.
C
the distribution of earnings to shareholders.
D
the profitable sale of shares.

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