AnswersCMS 2026-2027 Economics and Personal Finance INITIAL CREDITPrinciples of Investment

Principles of Investment — Quiz Answers

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1
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Which statement best describes how inflation affects the value of investments over time?

A
It controls the value of investments.
B
It increases the value of money.
C
It erases the value of investments.
D
It decreases the value of money.
2
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What occurs over time as a result of inflation? Choose two correct answers.

A
The dollar’s future value changes.
B
The dollar’s value becomes unstable.
C
Interest rates decrease.
D
Interest becomes worth less money.
E
Interest rates fluctuate in value.
3

Which characteristic is most important in determining an investment’s level of risk?

A
prominence
B
predictability
C
popularity
D
price
4

Why should investors know the difference between nominal and real interest rates?

A
to guarantee an investment’s profitability
B
to understand changes in monetary policy
C
to recognize the effects of inflation
D
to know what they are likely to lose
5

An investment with a stable and predictable history will most likely have

A
no risk.
B
high risk.
C
low risk.
D
medium risk.
6

Why should investors know the difference between nominal and real interest rates?

A
to know what they are likely to lose
B
to understand changes in monetary policy
C
to guarantee an investment’s profitability
D
to recognize the effects of inflation
7

Which characteristic is most important in determining an investment’s level of risk?

A
prominence
B
price
C
predictability
D
popularity
8

If the nominal interest rate is 4.00% and the rate of inflation is 2.25% , what is the real interest rate?

A
6 point 2 5 percent
B
4 point 5 0 percent
C
9 point 0 0 percent
D
1 point 7 5 percent
9

Compared to high-risk investments, low- and medium-risk investments are in higher demand because they

A
are always affordable.
B
last only a short time.
C
are considered safer.
D
guarantee a profit.
10

Which statement is true of the relationship between risk and return?

A
The greater the risk, the lower the potential return.
B
The greater the risk, the greater the potential return.
C
The relationship between risk and return is always the same.
D
The relationship depends on the individual investment.
11

Which statement best describes how inflation affects the value of investments over time?

A
It erases the value of investments.
B
It decreases the value of money.
C
It controls the value of investments.
D
It increases the value of money.
12

Which statement is true of the relationship between risk and return?

A
The greater the risk, the lower the potential return.
B
The relationship between risk and return is always the same.
C
The greater the risk, the greater the potential return.
D
The relationship depends on the individual investment.
13

Interest rates generally reflect

A
the real value of the investment.
B
the amount of money invested.
C
the level of risk in an investment.
D
the potential effects of inflation.
14

An investment with a stable and predictable history will most likely have

A
high risk.
B
no risk.
C
low risk.
D
medium risk.
15

What occurs over time as a result of inflation? Choose two correct answers.

A
Interest rates decrease.
B
The dollar’s future value changes.
C
Interest rates fluctuate in value.
D
Interest becomes worth less money.
E
The dollar’s value becomes unstable.
16

If the nominal interest rate is 4.00% and the rate of inflation is 2.25% , what is the real interest rate?

A
9 point 0 0 percent
B
4 point 5 0 percent
C
1 point 7 5 percent
D
6 point 2 5 percent
17

Compared to high-risk investments, low- and medium-risk investments are in higher demand because they

A
are considered safer.
B
are always affordable.
C
guarantee a profit.
D
last only a short time.

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