Principles of Investment Answers
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Which statement best describes how inflation affects the value of investments over time?
A
It erases the value of investments.B
It increases the value of money.C
It decreases the value of money.D
It controls the value of investments.2
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The graph shows the effect of inflation.Approximately how much of the initial investment’s value would be lost after 15 years at 3% inflation?
A
15%B
20%C
40%D
50%3
Which statement is true of the relationship between risk and return?
A
The greater the risk, the greater the potential return.B
The relationship between risk and return is always the same.C
The greater the risk, the lower the potential return.D
The relationship depends on the individual investment.4
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A
actualB
futureC
inflatedD
stated5
Changes in monetary policy have the greatest effect on
A
income tax rates.B
service fees and expenses.C
demand for investments.D
government spending.6
An investment with a stable and predictable history will most likely have
A
no risk.B
low risk.C
medium risk.D
high risk.7
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A
BudgetaryB
FiscalC
InflationD
Monetary8
If the Federal Reserve decreased the money supply, what would the effects be? Check all that apply.
A
decreased interest ratesB
increased interest ratesC
decreased borrowingD
increased borrowingE
decreased investingF
increased investing9
Which characteristic is most important in determining an investment’s level of risk?
A
popularityB
predictabilityC
priceD
prominence10
Why should investors know the difference between nominal and real interest rates?
A
to know what they are likely to loseB
to understand changes in monetary policyC
to guarantee an investment’s profitabilityD
to recognize the effects of inflationDid you find these answers helpful?
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