The Econ4U Investing Quiz

Individuals with higher savings and investment rates will more likely,

Have higher incomes in the future.
Spend larger amount of money in the present.
Have a poverty level income.
Experience financial difficulties.
Please select an answer.

The federal government insures a narrow range of assets against loss. From the list below, identify which investments are federally insured.

Mutual funds
Treasury bonds
Preferred stocks
Money market accounts
Please select an answer.

Farrah and Kareem each set aside $100 a month for retirement. Both invest in an indexed equity mutual fund with an expected rate of return of 7 percent per year. Farrah gets an early start at age 25. Kareem doesn’t start saving until age 45. How much more than Kareem will Farrah’s investment grow over 40 years (until they retire at age 65)? Hint: Use Bankrate.com’s Simple Savings Calculator to aid in your calculations.

No difference- they grow by the same amount
Twice as much
More than four times as much
About seven times as much
Please select an answer.

Assuming the cost of a pack of cigarettes is about $4.50, including taxes, a pack-a-day smoker burns through about $31.50 per week, or $126 per month. If a 30-year-old decides to quit smoking and invest the $126 per month in a tax-deferred 401(k) account promising 7% a year how much will this investment strategy produce by age 70? Assume an initial deposit of $0. Use the CNNMoney.com calculator to find the closest amount.

$5,000
$60,000
$300,000
$500,000
Please select an answer.

Committing $100 before taxes to tax-deferred investments,

Puts your pre-tax dollars to work early and potentially increases your retirement income.
Increases the amount of taxes paid today in order to reduce the amount paid in the future.
Increases the amount of net income available for after-tax consumption, savings or investment.
Gains access to investments with no risk of loss.
Please select an answer.

Which piece of advice about investment returns holds true?

Investors make the most money by purchasing preferred stocks that are widely expected to earn substantial profits in the future.
While changes in prices of specific stocks are difficult to predict, experts can forecast the future direction of the broad stock market indexes with a high degree of accuracy.
Surprise occurrences drive changes in stock prices making them difficult to predict.
Managed mutual funds will persistently out-perform indexed funds.
Please select an answer.

Indexed equity mutual funds are created to match the performance of a particular financial index – for instance, the Dow Jones Industrial Average. Conversely, managed equity mutual funds involve more stock-picking on behalf of the fund managers. Which of the following is an advantage of indexed equity mutual funds compared to managed equity mutual funds?

Indexed funds generally have better stock pickers than their “managed” counterparts.
Indexed funds are driven by extensive and highly specialized research.
Indexed funds have lower operating costs because less stock trading is involved.
Indexed funds have significantly higher rates of return than broad portfolios representing the entire stock market.
Please select an answer.

Stock owners can expect a smaller variation in their rate of return if:

All funds are invested in a specific sector of the economy. (i.e.: health care)
A diverse set of stocks is held over a lengthy period of time. (i.e.: 30 or 40 years)
All of the funds are invested in a single stock.
The funds are invested for a relatively short period of time.
Please select an answer.

Buying shares of corporate stock can be risky when:

Only buying stock in a single corporation.
The stock may need to be sold within a few months.
All corporate stocks are bought in the same industry.
All of the above.
Please select an answer.

Which of the following enhances the investors’ ability (without any special business skills or expert knowledge) to benefit from ownership of corporate stocks?

Increased availability of mutual funds, that make it possible for even small investors to purchase a diverse stock portfolio at a low cost.
An increased tendency of small investors to buy and sell stock frequently.
The virtual disappearance of business failures among corporations with publicly traded stock shares.
Traditional savings accounts.
Please select an answer.

Which of the following is a risk associated with investing in bonds?

Interest rate increases can reduce the market value of a bond.
Unanticipated inflation lessens the value of both principal and fixed-interest income.
If a bond issuing firm goes bankrupt, bondholders may lose all or most of their investment.
All of the above.
Please select an answer.