Introduction To Investing Quiz

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Introduction To Investing Quiz - Quiz

Have you or are you studying finance, economics, investing or banking on a regular basis and how much information do you recall from the study? Take this quiz if you want to refresh your memory on investing.


Questions and Answers
  • 1. 

    Why do you look at the long-term track record with a mutual fund?

  • 2. 

    How do you go about finding the right person to help you invest?

  • 3. 

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

    • A.

      Higher risk indicates lower return

    • B.

      Higher risk indicates higher return

    • C.

      Lower risk indicates higher return

    • D.

      No relationship exists between risk and return

    Correct Answer
    B. Higher risk indicates higher return
    Explanation
    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.

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  • 4. 

    A diversified portfolio is desirable because it:

    • A.

      Increases the risk/return ratio

    • B.

      Limits investors choices to only one or two investment tools

    • C.

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

    • D.

      Decreases risk by investing money in a variety of investment tools

    Correct Answer
    D. 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 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.

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  • 5. 

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

    • A.

      A stock investor may or may not receive a profit

    • B.

      A stock investor may receive a dividend

    • C.

      A stock investor owns a part of a company

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    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.

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  • 6. 

    What is a bond?

    • A.

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

    • B.

      A share of ownership in a company

    • C.

      A type of investment that is only offered by depository institutions

    • D.

      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. 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.

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  • 7. 

    The value of a stock can change when:

    • A.

      Dollar value of a stock increases or decreases

    • B.

      A stock split occurs

    • C.

      A merger happens between two companies

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    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.

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  • 8. 

    A growth stock is associated with a company:

    • A.

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

    • B.

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

    • C.

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

    • D.

      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 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.

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  • 9. 

    A blue chip stock is associated with a company:

    • A.

      With a consistent record of relatively rapid growth and earnings

    • B.

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

    • C.

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

    • D.

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

    Correct Answer
    C. 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-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.

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  • 10. 

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

    • A.

      A brokerage firm

    • B.

      A depository institution

    • C.

      The New York Stock Exchange

    • D.

      Any of the above

    Correct Answer
    A. A brokerage firm
    Explanation
    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.

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  • 11. 

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

    • A.

      Real Estate

    • B.

      Mutual Fund

    • C.

      Savings Bond

    • D.

      Futures

    Correct Answer
    D. Futures
    Explanation
    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.

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  • 12. 

    What is inflation?

    • A.

      The rise in the general level of prices.

    • B.

      The uncertainty the return on an investment will deviate from what is expected.

    • C.

      The number of times something happens to money.

    • D.

      The projected value of an investment at the end of a specified time frame.

    Correct Answer
    A. The rise in the general level of prices.
    Explanation
    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.

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