AnswersPersonal Finance - EL3403Investing and Financial Markets

Investing and Financial Markets — Unit test Answers

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1
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Which statement best describes how an investor makes money off debt?

A
An investor makes money by issuing bonds.
A
An investor makes money by earning interest.
A
An investor makes money by raising capital.
A
An investor makes money by being repaid for the principal.
2
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Which factors can affect a stock’s price? Check all that apply.

A
market performance
B
the company’s financial health
C
the quantity products produced
D
location of the company
E
the economy
3

best

T
They both use taxes to support a country’s growth.
T
They both invest money to earn a profit.
T
They both receive capital to use for growth.
T
They both act as angel investors for start-ups.
4

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.
5

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.
6

best

b
by earning interest
b
by selling the asset for a profit
b
by raising capital
b
by growing the asset
7

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.
8

Which types of investments are securities?

A
both debt and equity
B
debt only
C
equity only
D
neither debt nor equity
9

What can be traded in a commodities market?

A
stock
B
bonds
C
oil
D
debt
10

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.
11

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

r
risk
l
likelihood
p
probability
c
chance
12

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.
13

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.
14

Which best describes what generally occurs in financial markets?

A
Debt and loans are traded.
B
Assets are traded.
C
Commodities are traded.
D
Shares are traded.
15

Which are common types of bonds that are currently issued? Check all that apply.

A
corporate bonds
B
equity bonds
C
municipal bonds
D
Treasury bills
E
Treasury notes
F
war bonds
16

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.
17

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

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