Chapter 4 Formative Assessment

20 Questions | Total Attempts: 209

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Formative Assessment Quizzes & Trivia

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Questions and Answers
  • 1. 
    When a corporation distributes their profit amongst their shareholders, these payments are called what?
    • A. 

      Dividends

    • B. 

      Interest

    • C. 

      Retained Earnings

    • D. 

      Income

  • 2. 
    Which type of investments allows one to spread out their risk because their money is being placed in many investments and is being invested by a fund manager?
    • A. 

      Mutual Fund

    • B. 

      Stocks

    • C. 

      Bonds

    • D. 

      Savings Accounts

  • 3. 
    Which of the following is an advantage of a Roth IRA?
    • A. 

      Income taxes are avoided on the capital gains, interest, and dividends

    • B. 

      Income taxes are very low on the capital gains, interest, and dividends

    • C. 

      High capital gains are guaranteed

    • D. 

      High interest rates are guaranteed

  • 4. 
    When a corporation offers its shares to the general public to buy for the first time, this is called
    • A. 

      An Initial Public Offering

    • B. 

      An Initial First Offering

    • C. 

      A Roth IRA

    • D. 

      The buy price

  • 5. 
    Growth investors make their money when
    • A. 

      They buy a financial product or asset.

    • B. 

      They sell a financial product or asset.

    • C. 

      The value of the asset increases.

    • D. 

      The value of the asset decreases.

  • 6. 
    According to the investment pyramid that tracks degree of risk and degree of possible reward, three investments that are considered “lower risk, lower reward” are
    • A. 

      Options, futures, collectibles.

    • B. 

      Cash, government bonds, bank accounts.

    • C. 

      Real estate, stocks, high income bonds

    • D. 

      CDs, real estate, collectibles.

  • 7. 
    An investment that is liquid is one that you
    • A. 

      Keep in the stock market.

    • B. 

      Keep in a long-term bond. 

    • C. 

      Can turn into cash, but with a penalty fee.

    • D. 

      Can turn into cash easily.

  • 8. 
    How much you invest in capital preservation and how much you place in capital appreciation depends, in part, on your age. A person who is in their late 50s should invest 
    • A. 

      More of their money in capital preservation.

    • B. 

      More of their money in capital appreciation.

    • C. 

      All of their money in capital preservation.

    • D. 

      All of their money in capital appreciation.

  • 9. 
    Which of the following is true of a dividend yield? The money dividends pay 
    • A. 

      Varies, and is considered unearned income.

    • B. 

      Is fixed, and considered unearned income.

    • C. 

      Varies, and is considered earned income.

    • D. 

      Is fixed, and considered earned income.

  • 10. 
    The author strongly advises that you should not invest all of your savings. Which of the following are funds that you should NOT invest?
    • A. 

      Money you hope to use for a down payment on a house ten years from now

    • B. 

      Money for a new car in three or four years

    • C. 

      Money for a winter ski trip in ten months

    • D. 

      Money left over after budgeting all expenses and savings goals

  • 11. 
    An investor who chooses to put their money in various financial products, such as Treasury bonds, CDs, stocks, mutual funds, and real estate, has a(n)
    • A. 

      Liquid portfolio.

    • B. 

      Illiquid portfolio.

    • C. 

      Diversified asset allocation portfolio.

    • D. 

      Non-diversified asset allocation portfolio.

  • 12. 
    Which of the following types of bonds are described here: Interest is compounded twice a year, the bonds are guaranteed by the federal government, there is no state or local tax on the interest, but there is a penalty for redeeming before five years.
    • A. 

      U.S. Savings Bonds

    • B. 

      U.S. Treasury bonds, notes and bills

    • C. 

      State municipal bonds

    • D. 

      Corporate bonds

  • 13. 
    If an investor wants to receive regular dividend payments, they should invest in
    • A. 

      U.S. Savings Bonds.

    • B. 

      Municipal bonds.

    • C. 

      The stock of large, corporate companies.

    • D. 

      The stock of small, start-up companies.

  • 14. 
    A stock broker is someone who
    • A. 

      Works for a company to sell you its shares.

    • B. 

      Can buy and sell shares for you.

    • C. 

      Sells you his shares in a company.

    • D. 

      Buys your shares in a company.

  • 15. 
    Despite volatility in the stock market, between 1926 and 2008, stocks have produced an average annual return of 9.6%, which is
    • A. 

      Double the return of bonds over the same period.

    • B. 

      Slightly better than the return of bonds over the same period.

    • C. 

      Equal to the return of bonds over the same period.

    • D. 

      Half the return of CDs over the same period.

  • 16. 
    Which of the following statements is NOT true about mutual funds?
    • A. 

      They are a form of indirect investing

    • B. 

      They give the investor access to more diversity for less money

    • C. 

      They offer less diversity than other investments

    • D. 

      They are a dominant investment choice in many retirement accounts

  • 17. 
    Complete the following statement: “The author recommends, as a general rule, that the majority of your investments should be in ____________ when you are in your 20s, moving toward a majority in ____________ by the time you are near retirement.”​
    • A. 

      Capital appreciation; capital preservation

    • B. 

      Bonds; stocks

    • C. 

      IRA; Roth IRA

    • D. 

      IRA; Employee Pension

  • 18. 
    All of the following are powers of the Securities and Exchange Commission (SEC), except:
    • A. 

      It requires public companies to file quarterly and annual reports

    • B. 

      It recommends new laws and rules to be passed by Congress

    • C. 

      It sets the fees brokers can charge clients for buying stock

    • D. 

      It takes legal action against wrongdoers

  • 19. 
    A rise of one point in a share of any stock means an increase of 
    • A. 

      One dollar in the dividend paid

    • B. 

      One percent of the price earnings ratio

    • C. 

      One percent over the previous day's price of stock

    • D. 

      One dollar in the price of the stock

  • 20. 
    The goal of an income investment is to
    • A. 

      Maximize risk for higher returns

    • B. 

      Delay the return on the investment until a future date

    • C. 

      Increase current cash flow

    • D. 

      Increase the value of an asset