How To Invest Your Money?

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| By Donelson
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Donelson
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Quizzes Created: 2 | Total Attempts: 1,002
| Attempts: 283
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  • 1/19 Questions

    What is inflation?

    • The rise in the general level of prices.
    • The uncertainty the return on an investment will deviate from what is expected.
    • The number of times something happens to money.
    • The projected value of an investment at the end of a specified time frame.
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Investing Quizzes & Trivia
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  • 2. 

    The relatiioshipp between risk and return in investing can be stated as:

    • Higher risk indicates lower return

    • Higher risk indicates higher return

    • Lower risk indicates higher return

    • No relationship exists between risk and return

    Correct Answer
    A. Higher risk indicates higher return
    Explanation
    The correct answer is "higher risk indicates higher return." This means that in investing, when an individual takes on a higher level of risk, they have the potential to earn a higher return on their investment. This relationship exists because higher-risk investments typically involve the possibility of losing money, so investors require a higher return to compensate for that risk. Conversely, lower-risk investments offer a lower potential return because they have a lower probability of loss.

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  • 3. 

    What is a bond?

    • A type of debt that a company issues to investors for a specified amount of time

    • A share of ownership in a company

    • A type of investment that is only offered by depository institutions

    • A type of Certificate of Deposit with a higher than average interest rate

    Correct Answer
    A. A type of debt that a company issues to investors for a specified amount of time
    Explanation
    A bond is a type of debt that a company issues to investors for a specified amount of time. It is essentially a loan where the company borrows money from investors and promises to pay them back with interest over a fixed period. Investors who purchase bonds become creditors of the company and receive regular interest payments until the bond matures, at which point the principal amount is repaid. Bonds are commonly used by companies to raise capital for various purposes, such as financing projects, expanding operations, or paying off existing debts.

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  • 4. 

    A growth stock is associated with a company:

    • That is new with a consistent record of relatively rapid growth and earnings

    • With a spotty earnings pattern but potential for substantial earnings in the future

    • Which dominates its respective industry and has a good company management reputation

    • With a steady stream of income paying high dividends and retaining only a small portion of profits

    Correct Answer
    A. That is new with a consistent record of relatively rapid growth and earnings
    Explanation
    A growth stock is associated with a company that is new with a consistent record of relatively rapid growth and earnings. This means that the company is relatively young but has consistently shown significant growth in both its revenue and earnings. This suggests that the company has a strong business model and is able to generate consistent profits. Investors are attracted to growth stocks because they believe that the company's growth will continue in the future, leading to potential capital gains.

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  • 5. 

    Stock analysts use this term for a market which is doing poorly and does not have investor confidence:

    • Rooster market

    • Bear market

    • Bull market

    • Sheep market

    Correct Answer
    A. Bear market
    Explanation
    A bear market refers to a market that is experiencing a prolonged period of decline in prices, typically by 20% or more, and is characterized by pessimism, selling pressure, and a lack of investor confidence. In a bear market, investors are generally bearish and expect further declines in the market. This term is often used by stock analysts to describe a market that is performing poorly and is not favored by investors.

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  • 6. 

    The value of a stock can change when:

    • Dollar value of a stock increases or decreases

    • A stock split occurs

    • A merger happens between two companies

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    The value of a stock can change due to various factors. When the dollar value of a stock increases or decreases, it directly affects the overall value of the stock. A stock split occurs when a company divides its existing shares into multiple shares, which can impact the stock's value. Similarly, when two companies merge, it can lead to changes in the stock value as the combined entity's prospects and market position may differ from the individual companies. Therefore, all of the mentioned scenarios can cause fluctuations in the value of a stock.

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  • 7. 

    Conner wants to purchase stocks with the money he received from his tax return.  Who would he contact to make the transactions?

    • A brokerage firm

    • A depository institution

    • The New York Stock Exchange

    • Any of the above

    Correct Answer
    A. A brokerage firm
    Explanation
    Conner would contact a brokerage firm to make the transactions. A brokerage firm is a financial institution that facilitates the buying and selling of stocks and other securities on behalf of its clients. They have the necessary expertise and resources to execute stock transactions and provide investment advice to individuals like Conner. Therefore, a brokerage firm is the correct choice for Conner to contact for purchasing stocks with his tax return money.

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  • 8. 

    An investor can assess the health of the economy by researching the:

    • Dow Jones Industrial Average

    • Standard and Poor's 500 Composite Index

    • National Association of Security Dealers Automated Quotations (NASDAQ)

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    An investor can assess the health of the economy by researching the Dow Jones Industrial Average, Standard and Poor's 500 Composite Index, and the National Association of Security Dealers Automated Quotations (NASDAQ). These three indexes are widely used benchmarks that provide insights into the overall performance of the stock market. The Dow Jones Industrial Average represents the performance of 30 large, publicly traded companies, while the S&P 500 Composite Index includes 500 leading companies across various sectors. The NASDAQ focuses on technology and growth-oriented companies. By analyzing these indexes, investors can gain a comprehensive understanding of the economy's health and make informed investment decisions.

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  • 9. 

    Which of the following is true in regards to investing in stock?

    • A stock investor may or may not receive a profit

    • A stock investor may receive a dividend

    • A stock investor owns a part of a company

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    All of the statements mentioned in the options are true in regards to investing in stock. A stock investor may or may not receive a profit, as the value of the stock can fluctuate. Additionally, a stock investor may receive a dividend, which is a portion of the company's profits distributed to shareholders. Lastly, when someone invests in stock, they own a part of the company, which grants them certain rights and privileges.

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  • 10. 

    A diversified portfolio is desirable because it:

    • Increases the risk/return ratio

    • Limits investors choices to only one or two investment tools

    • Indicates an investor is a good predictor of the return an investment will have

    • Decreases risk by investing money in a variety of investment tools

    Correct Answer
    A. Decreases risk by investing money in a variety of investment tools
    Explanation
    A diversified portfolio decreases risk by investing money in a variety of investment tools. By spreading investments across different asset classes, industries, and geographic regions, the portfolio becomes less vulnerable to the performance of any single investment. This reduces the impact of potential losses and increases the likelihood of achieving positive returns. Diversification helps to mitigate the risk associated with individual investments and allows investors to benefit from the potential upside of different sectors or markets.

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  • 11. 

    Brian is 56 years old.  He is anticipating retirement in the next ten years.  He would like to invest in the stock market.  What price/earnings ratio would satisfy Brian's needs?

    • 7-10

    • 15-25

    • 40-50

    • The P/E ratio of a company should not affect Brian's choice

    Correct Answer
    A. 7-10
    Explanation
    Brian is 56 years old and is planning to retire in the next ten years. Given that he wants to invest in the stock market, it is important for him to consider the price/earnings ratio (P/E ratio) of the companies he invests in. A lower P/E ratio indicates that the stock is relatively cheaper compared to its earnings, which may be beneficial for Brian as he approaches retirement. Therefore, a P/E ratio range of 7-10 would satisfy Brian's needs by providing him with potentially undervalued stocks.

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  • 12. 

    Cyclical stock are greatly influenced by:

    • Changes in the market that make it a bull market

    • Changes in the economic business cycles

    • The highest and lowest prices the stock was sold at per share during the last 52 weeks

    • The ratio of stock to bonds that are sold on a daily basis

    Correct Answer
    A. Changes in the economic business cycles
    Explanation
    Cyclical stocks are greatly influenced by changes in the economic business cycles. This means that the performance of these stocks is closely tied to the fluctuations in the overall economy. When the economy is in a growth phase, cyclical stocks tend to perform well as consumer spending and business investments increase. Conversely, during economic downturns, cyclical stocks may underperform as consumer demand and business activity decrease. Therefore, understanding and predicting changes in the economic business cycles is crucial for investors in cyclical stocks.

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  • 13. 

    The numerical measure an investor looks at when determining how well a company's stock is doing is the:

    • P/E ration

    • Beta

    • Book value

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    The correct answer is "All of the above" because when determining how well a company's stock is doing, an investor looks at multiple numerical measures. The P/E ratio is a commonly used measure that compares a company's stock price to its earnings per share. Beta is a measure of a stock's volatility in relation to the overall market. Book value is the value of a company's assets minus its liabilities, and it is often used to assess a company's intrinsic value. Therefore, all of these measures are relevant when evaluating a company's stock performance.

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  • 14. 

    What should be remembered when applying the Rule of 72?

    • Tax deductins are included within the equation

    • Interest earned is reinvested

    • The rule is only an approximation

    • Both b and c

    Correct Answer
    A. Both b and c
    Explanation
    When applying the Rule of 72, it is important to remember that interest earned is reinvested and that the rule is only an approximation. The Rule of 72 is a simplified method used to estimate the time it takes for an investment to double based on a fixed interest rate. It assumes that the interest earned is reinvested and that the growth is compounded. However, it is important to note that the rule is not precise and only provides an approximate estimate. Therefore, both options b and c should be remembered when applying the Rule of 72.

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  • 15. 

    When comparing and contrasting a mutual fund and an index fund, which of the following is true?

    • The stocks and bonds that create a mutual fund are chosen by the investor, where as the stocks and bonds that crete an index fund are chosen by a group of experts

    • The stocks and bonds that crete a mutual fund are chosen by a group of experts, where as the stocks and bonds that crete an index fund and pre-determined by an index

    • There is no difference between a mutual fund and an index fund

    • None of the above

    Correct Answer
    A. The stocks and bonds that crete a mutual fund are chosen by a group of experts, where as the stocks and bonds that crete an index fund and pre-determined by an index
    Explanation
    In a mutual fund, the stocks and bonds are selected by a group of experts who have expertise in analyzing and choosing the best investment options. On the other hand, an index fund follows a specific index, such as the S&P 500, and its stocks and bonds are predetermined based on that index. Therefore, the correct answer is that the stocks and bonds that create a mutual fund are chosen by a group of experts, whereas the stocks and bonds that create an index fund are predetermined by an index.

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  • 16. 

    A blue chip stock is associated with a company:

    • With a consistent record of relatively rapid growth and earnings

    • With a spotty earnings pattern but potential for substantial earnings in the future

    • Which dominates its respective industry and has a good company management reputation

    • With a steady stream of income paying high dividends and retaining only a small portion of profits

    Correct Answer
    A. Which dominates its respective industry and has a good company management reputation
    Explanation
    A blue chip stock is associated with a company that dominates its respective industry and has a good company management reputation. This means that the company is a leader in its field and is well-regarded for its management practices. Blue chip stocks are typically considered to be stable and reliable investments, as they are associated with well-established companies that have a track record of success.

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  • 17. 

    Which of the following investment tools is considered to be a speculative investment?

    • Real Estate

    • Mutual Fund

    • Savings Bond

    • Futures

    Correct Answer
    A. Futures
    Explanation
    Futures are considered to be a speculative investment because they involve making bets on the future price movements of commodities, currencies, or financial instruments. Unlike other investment tools like real estate, mutual funds, and savings bonds, futures trading involves high levels of risk and uncertainty. Traders speculate on the price direction and make profits or losses based on their predictions. The volatile nature of futures markets makes them more suitable for experienced and risk-tolerant investors who are willing to take on higher levels of risk in pursuit of potentially higher returns.

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  • 18. 

    An income stock could also be called a:

    • Treasury bond

    • Value Stock

    • Countercyclical Stock

    • Cyclical Stock

    Correct Answer
    A. Countercyclical Stock
    Explanation
    An income stock is a type of stock that pays regular dividends to its shareholders. These stocks are typically issued by companies that have stable and consistent earnings. Countercyclical stocks are stocks that tend to perform well during economic downturns or recessions. Since income stocks are known for their stable dividend payments, they can be considered countercyclical stocks as they provide a reliable income stream even during challenging economic times. Therefore, countercyclical stock is a suitable alternative term for an income stock.

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  • 19. 

    Which of the following statements is true in regards to paying taxes on investments?

    • Since investments are considered unearned income, taxes do not have to be paid on earnings.

    • Taxes have to be paid on every type of investment in the year in whcih the unearned income is received.

    • Taxes only have to be paid on employer-sponsored investment accounts.

    • None of the above

    Correct Answer
    A. None of the above
    Explanation
    The given answer states that none of the above statements are true. This means that there is no statement among the options that accurately describes the truth about paying taxes on investments. Therefore, the correct answer is "None of the above."

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Quiz Review Timeline (Updated): Mar 20, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 24, 2010
    Quiz Created by
    Donelson

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