Introduction To Investing Quiz

The correct answer is "higher risk indicates higher return". This is because in investing, higher risk investments tend to have the potential for higher returns. This is because investors require compensation for taking on higher levels of risk. Higher risk investments often involve the possibility of losing money, but they also have the potential for higher profits. Therefore, investors who are willing to take on higher levels of risk are often rewarded with higher returns.

The value of a stock can change due to various factors. Firstly, the dollar value of a stock can increase or decrease based on market conditions, investor sentiment, and company performance. Secondly, a stock split can also impact the stock's value. In a stock split, the number of shares increases while the price per share decreases, potentially affecting the overall value. Lastly, when two companies merge, it can lead to changes in the stock value of both companies involved, as the market reacts to the new entity's potential prospects. Therefore, all of the mentioned factors can influence the value of a stock.

All of the given statements are true in regards to investing in stock. A stock investor may or may not receive a profit depending on the performance of the stock they have invested in. They may also receive a dividend, which is a portion of the company's earnings distributed to shareholders. Additionally, when someone invests in stock, they become a partial owner of the company, which means they have a stake in its assets and future profits.

Inflation refers to the increase in the overall prices of goods and services in an economy over a certain period of time. It is a measure of the decrease in purchasing power of a currency, as the same amount of money can buy fewer goods and services. This rise in prices can be caused by various factors such as increased production costs, higher demand, or changes in government policies. Inflation affects consumers by reducing their purchasing power and can have significant impacts on businesses, investments, and the overall economy.

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 susceptible to the performance of any single investment. This diversification helps to mitigate the impact of any individual investment's poor performance, as losses in one area may be offset by gains in another. Therefore, a diversified portfolio reduces the overall risk and potential losses for an investor.

A bond is a type of debt that a company issues to investors for a specified amount of time. This means that when a company needs to raise funds, it can issue bonds to investors who are willing to lend money to the company. In return, the company promises to pay back the principal amount of the bond along with periodic interest payments. Bonds are considered a relatively safe investment because they are backed by the company's ability to repay the debt. Investors who purchase bonds are essentially lending money to the company and earning interest on their investment.

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 shown consistent and significant growth in both its revenue and earnings over a period of time. This indicates that the company has a strong business model and is able to generate substantial 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.

Futures are considered to be a speculative investment because they involve buying or selling contracts for the future delivery of assets, such as commodities or financial instruments, at a predetermined price. Unlike other investment tools like real estate, mutual funds, or savings bonds, futures trading carries a higher level of risk and uncertainty due to the potential for significant price fluctuations. This makes futures a popular choice for traders looking to profit from short-term price movements, but it also exposes them to the possibility of substantial losses.

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-managed, which gives investors confidence in its ability to generate profits and maintain stability. Blue chip stocks are considered to be safe investments with a lower risk compared to other stocks, as they are typically well-established and have a history of success.

Conner would contact a brokerage firm to make the transactions because brokerage firms are financial institutions that facilitate the buying and selling of stocks on behalf of their clients. They have the necessary expertise and resources to execute stock transactions and provide guidance to investors like Conner. Depository institutions, on the other hand, primarily deal with deposit accounts and loans, while the New York Stock Exchange is a stock exchange where stocks are traded but not directly accessible to individual investors. Therefore, the correct option is a brokerage firm.