Quiz 2: Credit Cards, Credit Reports, Credit Scores And Paying For College

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Quiz 2: Credit Cards, Credit Reports, Credit Scores And Paying For College - Quiz

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Questions and Answers
  • 1. 

    What strategy (ies) do credit card companies use to market their product and to make them more appealing?

    • A.

      Use professional athletes or other celebrities in their commercials

    • B.

      Highlight the fees and costs of using their cards

    • C.

      Discuss the dangers of carrying too much credit card debt

    • D.

      All of the above

    Correct Answer
    A. Use professional athletes or other celebrities in their commercials
    Explanation
    Credit card companies often use professional athletes or other celebrities in their commercials as a marketing strategy to make their product more appealing. By associating their brand with well-known figures, they aim to create a positive image and attract customers who admire or aspire to be like those celebrities. This endorsement can help build trust and credibility for the credit card company. Additionally, it may also attract attention and generate interest among potential customers who are fans of the featured athletes or celebrities.

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  • 2. 

    When selecting a credit card, which of the factors listed below SHOULD NOT be considered?

    • A.

      Interest rate

    • B.

      Penalties/Fees

    • C.

      Rewards or incentives

    • D.

      FDIC-insured

    Correct Answer
    D. FDIC-insured
    Explanation
    When selecting a credit card, the factor of FDIC-insurance should not be considered. This is because FDIC-insurance is a feature that applies to bank accounts, not credit cards. FDIC-insurance protects depositors' funds in case the bank fails, but it does not apply to credit card transactions or balances. Therefore, when choosing a credit card, it is not relevant to consider whether it is FDIC-insured or not.

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  • 3. 

    True or False.  Two of the benefits that a borrower with a very high credit score (e.g., over 800)  might include a higher likelihood of having their credit application approved as well as the potential for borrowing at lower interest rates.  

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A borrower with a very high credit score (e.g., over 800) is likely to have a higher likelihood of having their credit application approved because a high credit score indicates a low risk of defaulting on the loan. Lenders prefer to lend to borrowers with high credit scores as they are considered more reliable. Additionally, borrowers with high credit scores may also have the potential to borrow at lower interest rates. Lenders view these borrowers as less risky and are willing to offer them more favorable terms, including lower interest rates.

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  • 4. 

    Indicate all the possible consequences of making a late payment on your credit card. 

    • A.

      Charged a late payment fee of $35

    • B.

      Increase in interest rate to the Penalty APR rate, which will be significantly higher

    • C.

      Increase in rewards offered to cardholder

    • D.

      Credit score may go down as a result of poor payment history

    • E.

      A, B and D

    Correct Answer
    E. A, B and D
    Explanation
    Making a late payment on your credit card can have several consequences. Firstly, you will be charged a late payment fee of $35. Additionally, your interest rate will increase to the Penalty APR rate, which is significantly higher than the regular rate. This can result in higher finance charges on your outstanding balance. Furthermore, your credit score may go down as a result of poor payment history, which can make it more difficult for you to obtain credit in the future. Therefore, the possible consequences of making a late payment on your credit card are being charged a late payment fee, an increase in interest rate, and a negative impact on your credit score.

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  • 5. 

    A cash advance:

    • A.

      Occurs when a credit cardholder uses their credit card at an ATM to withdraw cash

    • B.

      Usually results in interest being charged immediately when the withdrawal is made since there is no grace period

    • C.

      Usually incurs a higher interest rate than standard purchases using a credit card

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    A cash advance refers to the act of using a credit card at an ATM to withdraw cash. This transaction typically incurs interest charges immediately, without any grace period. Additionally, cash advances usually come with higher interest rates compared to standard purchases made with a credit card. Therefore, all of the statements mentioned are true regarding cash advances.

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  • 6. 

    If you plan to pay off your credit card every month and will not be a revolver, which factor will be most important to you in selecting a credit card:

    • A.

      Interest rate

    • B.

      Rewards or incentives offered by credit card company

    • C.

      Quality of credit card commercials

    • D.

      Location of company headquarters

    Correct Answer
    B. Rewards or incentives offered by credit card company
    Explanation
    If you plan to pay off your credit card every month and will not be a revolver, the most important factor to consider in selecting a credit card would be the rewards or incentives offered by the credit card company. Since you will not be carrying a balance and incurring interest charges, the interest rate becomes less relevant. Instead, you can focus on maximizing the benefits you can receive from the credit card company, such as cashback, travel rewards, or other perks. The quality of credit card commercials or the location of the company headquarters are not significant factors in this scenario.

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  • 7. 

    SELECT TWO ANSWERS.  Bank of America VISA is offering an introductory rate of 0% APR and 3% cash back on all purchases.  What TWO questions should the savvy consumer ask when evaluating this program?

    • A.

      How long will this introductory offer last?

    • B.

      Can I get two credit cards for my account?

    • C.

      What will the APR and the cashback rewards be after the introductory period?

    • D.

      Does Bank of America VISA allow online transactions?

    Correct Answer(s)
    A. How long will this introductory offer last?
    C. What will the APR and the cashback rewards be after the introductory period?
    Explanation
    The savvy consumer should ask how long the introductory offer will last to determine the duration of the 0% APR and 3% cash back benefits. They should also inquire about the APR and cashback rewards after the introductory period to understand the long-term terms and benefits of the program.

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  • 8. 

    Holders of the same credit card brand (for example, the Wells Fargo VISA card), all pay the same interest rate regardless of their creditworthiness.  

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because credit card holders with the same brand may have different interest rates based on their creditworthiness. Credit card companies typically offer different interest rates to customers based on their credit scores and financial history. Therefore, not all holders of the same credit card brand will pay the same interest rate.

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  • 9. 

    Which website provides consumers with free credit reports from each of the three credit bureaus on an annual basis?

    • A.

      Freecreditreports.com

    • B.

      Freescores.com

    • C.

      Freecredit.com

    • D.

      Annualcreditreport.com

    Correct Answer
    D. Annualcreditreport.com
    Explanation
    annualcreditreport.com is the correct answer because it is the only website mentioned that provides consumers with free credit reports from each of the three credit bureaus on an annual basis. The other websites mentioned may provide credit reports or scores, but they do not specifically state that they offer reports from all three credit bureaus or that they are provided annually for free.

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  • 10. 

    Indicate which of the statements below is TRUE?

    • A.

      Your credit report includes information about your salary in it.

    • B.

      Your credit score is based on the information found in your credit report.

    • C.

      If you find an error in your credit report, there is no way to correct it.

    • D.

      Your credit report does not include information about your payment history.

    Correct Answer
    A. Your credit report includes information about your salary in it.
  • 11. 

    SELECT TWO ANSWERS.  The two most important factors in determining your credit score are:  

    • A.

      Amounts owed

    • B.

      Length of credit history

    • C.

      Types of credit used

    • D.

      Payment history

    Correct Answer(s)
    A. Amounts owed
    D. Payment history
    Explanation
    The two most important factors in determining your credit score are the amounts owed and payment history. The amounts owed refers to the total amount of debt you have, including credit card balances and loans. This factor is important because it shows how much of your available credit you are using. A high amount of debt can indicate financial instability and may negatively impact your credit score. Payment history refers to how consistently you make your payments on time. Timely payments demonstrate responsible financial behavior and can positively impact your credit score.

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  • 12. 

    Which of these organizations can see your credit report?

    • A.

      Lenders you are seeking to borrow from

    • B.

      Utility companies

    • C.

      Employers or prospective employers

    • D.

      Landlord whose apartment you want to rent

    • E.

      All of the above

    Correct Answer
    E. All of the above
    Explanation
    All of the above organizations can see your credit report. Lenders you are seeking to borrow from, utility companies, employers or prospective employers, and landlords whose apartment you want to rent all have the ability to access your credit report. This is because your credit report contains information about your financial history and creditworthiness, which is important for these organizations to assess your ability to repay debts, determine your reliability as a tenant, or make employment decisions.

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  • 13. 

    How long does negative information (for example, late payments or collection accounts) stay on your credit report?

    • A.

      1 year

    • B.

      3 years

    • C.

      7 years

    • D.

      15 years

    Correct Answer
    C. 7 years
    Explanation
    Negative information such as late payments or collection accounts stays on your credit report for 7 years. This means that lenders and creditors can see this information when assessing your creditworthiness during that time period. It is important to maintain a good credit history and make timely payments to avoid negative impacts on your credit report.

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  • 14. 

    Provide THREE answers to this question.  The three credit bureaus who collect information from banks and other financial institutions to create your credit report are:

    • A.

      TransUnion

    • B.

      TransLucent

    • C.

      Equifax

    • D.

      Equilar

    • E.

      Experian

    Correct Answer(s)
    A. TransUnion
    C. Equifax
    E. Experian
    Explanation
    The three credit bureaus that collect information from banks and other financial institutions to create your credit report are TransUnion, Equifax, and Experian.

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  • 15. 

    What is the range of FICO (credit) scores that a consumer can have?

    • A.

      100 to 900

    • B.

      250 to 1000

    • C.

      300 to 850

    • D.

      600 to 1000

    Correct Answer
    C. 300 to 850
    Explanation
    The range of FICO (credit) scores that a consumer can have is from 300 to 850. This means that the lowest possible score is 300, while the highest possible score is 850. FICO scores are commonly used by lenders to assess an individual's creditworthiness and determine their eligibility for loans or credit. A higher score indicates a lower credit risk, while a lower score suggests a higher credit risk.

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  • 16. 

    True or False.  The  higher the FICO score, the less likely the consumer will default (or not pay back) on their loan.  This is why this borrower is likely to get a lower interest rate on their loan.  

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A higher FICO score indicates a lower credit risk for the consumer. Lenders use FICO scores to assess the likelihood of a borrower defaulting on their loan. Therefore, a higher FICO score makes it less likely for the consumer to default on their loan, leading to a lower interest rate.

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  • 17. 

    Which of the following is NOT an example of credit?

    • A.

      Home mortgage

    • B.

      Auto loan

    • C.

      Student loan

    • D.

      Debit card

    • E.

      Payday loan

    Correct Answer
    D. Debit card
    Explanation
    A debit card is not an example of credit because it allows the cardholder to make purchases using their own funds, directly from their bank account. Unlike credit cards, which allow users to borrow money and pay it back later, a debit card does not involve any form of borrowing or credit.

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  • 18. 

    The higher interest rate (APR) that most credit card companies charge to a cardholder after a late payment: 

    • A.

      Balance transfer APR

    • B.

      Penalty APR

    • C.

      Penalty fee

    • D.

      Cashback reward APR

    • E.

      Purchases APR

    Correct Answer
    B. Penalty APR
    Explanation
    Penalty APR is the correct answer because credit card companies often impose a higher interest rate, known as the Penalty APR, on cardholders who make late payments. This serves as a penalty for not paying on time and encourages timely payments. The Penalty APR is typically significantly higher than the regular APR and can result in increased interest charges for the cardholder.

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  • 19. 

    SELECT TWO ANSWERS.  What are two most important factors that lenders will consider in your application for a loan?

    • A.

      The length of time that you have had a savings account open

    • B.

      Your FICO score

    • C.

      The college you attended

    • D.

      Your monthly income

    Correct Answer(s)
    B. Your FICO score
    D. Your monthly income
    Explanation
    Lenders consider the FICO score as it reflects your creditworthiness and indicates how likely you are to repay the loan. A higher FICO score indicates a lower risk for the lender. Additionally, lenders consider your monthly income to assess your ability to repay the loan. A higher monthly income suggests a higher capacity to make loan payments on time. The length of time that you have had a savings account open and the college you attended are not directly related to your ability to repay the loan and are therefore not as important factors for lenders.

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  • 20. 

    Investing in your college education makes sense because:  

    • A.

      Workers with college degrees make more money and have higher unemployment rates than those with high school degrees.

    • B.

      Workers with college degrees make less money but have lower unemployment rates than high school graduates.

    • C.

      Workers with college degrees make more money and have lower unemployment rates than high school graduates.

    Correct Answer
    C. Workers with college degrees make more money and have lower unemployment rates than high school graduates.
    Explanation
    Investing in a college education makes sense because workers with college degrees tend to earn higher salaries compared to those with only a high school education. Additionally, individuals with college degrees also experience lower rates of unemployment compared to high school graduates. This suggests that obtaining a college degree not only leads to better financial outcomes but also provides a higher level of job security.

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  • 21. 

    Select all the answers that apply.  Which of the following represent "free money" sources that can help you pay for college that never need to be repaid?  

    • A.

      Subsidized federal student loans

    • B.

      Cal Grants (for California residents attending California schools)

    • C.

      Pell Grants

    • D.

      Private loans

    • E.

      College scholarships

    Correct Answer(s)
    B. Cal Grants (for California residents attending California schools)
    C. Pell Grants
    E. College scholarships
    Explanation
    Cal Grants (for California residents attending California schools), Pell Grants, and College scholarships are all sources of "free money" that can help pay for college and do not need to be repaid. Subsidized federal student loans and private loans, on the other hand, do require repayment.

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  • 22. 

    True or False.  The "net price" (your out-of-pocket expenses) for a college education is often significantly LESS than the "sticker price" due to financial aid provided by the college to reduce the cost to those with the greatest financial need.  

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The "net price" for a college education refers to the actual amount that a student has to pay out of pocket after taking into account any financial aid or scholarships. This means that the net price is often lower than the "sticker price" or the full cost of tuition and fees. Colleges provide financial aid to students based on their financial need, so those who have the greatest need will receive more aid and have a lower net price. Therefore, the statement is true.

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  • 23. 

    Which of the following factors should be considered when selecting a college?

    • A.

      The "net price" of the college/university

    • B.

      Graduation rates

    • C.

      Whether college offers the field of study you are interested in

    • D.

      Quality of the student body based on test scores, GPA and selectivity of admissions

    • E.

      All of the above

    Correct Answer
    E. All of the above
    Explanation
    When selecting a college, it is important to consider multiple factors. The "net price" of the college/university is crucial as it determines the affordability and financial burden. Graduation rates indicate the success and effectiveness of the institution in helping students complete their degree programs. The availability of the desired field of study is essential to ensure that the college offers the necessary academic programs. Lastly, the quality of the student body, which is determined by test scores, GPA, and selectivity of admissions, can impact the overall learning environment and opportunities for growth. Therefore, considering all of these factors is important in making an informed decision about selecting a college.

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  • 24. 

    In order to qualify for financial aid, prospective college students must file the:  

    • A.

      Financial Aid Letter

    • B.

      FAFSA

    • C.

      Credit Report

    • D.

      Magna Carta

    Correct Answer
    B. FAFSA
    Explanation
    To qualify for financial aid, prospective college students must file the FAFSA (Free Application for Federal Student Aid). This application is used to determine the student's eligibility for various types of financial aid, including grants, scholarships, and loans. It collects information about the student's and their family's income, assets, and household size to assess their financial need. Filing the FAFSA is a crucial step for students who require financial assistance to afford their college education.

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  • 25. 

    SELECT ALL THE ANSWERS BELOW THAT APPLY.  What lesson(s) were learned in the ten period Investment Game that we played in class (the game involving the dice)

    • A.

      The pain of losses is felt more deeply than the joy of gains.

    • B.

      Many investors look to experts for advice given the uncertainty of future outcomes. That is OK since almost all experts are excellent in predicting the short and long term movements of the stock markets.

    • C.

      "Timing the market," or making decisions on when to exit and enter the market is not difficult since it is usually obvious when the market will fall and then when it will rise again.

    • D.

      Investors must have "emotional stability" in order to manage through periods when stock market returns can be turbulent.

    Correct Answer(s)
    A. The pain of losses is felt more deeply than the joy of gains.
    D. Investors must have "emotional stability" in order to manage through periods when stock market returns can be turbulent.
    Explanation
    The first lesson learned is that the pain of losses is felt more deeply than the joy of gains. This means that people tend to be more affected by and remember negative experiences, such as losing money in the stock market, more than positive experiences, such as making money. The second lesson is that investors must have emotional stability in order to manage through periods when stock market returns can be turbulent. This means that being able to stay calm and rational during volatile market conditions is important for long-term investment success.

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  • 26. 

    The gains from an investment in a company's stock that trades on a public exchange might include these two components:

    • A.

      Dividend and share price appreciation (rise in the stock price)

    • B.

      Return of principal and coupon

    • C.

      Dividend and coupon

    • D.

      Coupon and share price appreciation (rise in the stock price

    Correct Answer
    A. Dividend and share price appreciation (rise in the stock price)
    Explanation
    The gains from an investment in a company's stock that trades on a public exchange include both dividends and share price appreciation. Dividends are regular payments made by the company to its shareholders as a portion of its profits. Share price appreciation refers to the increase in the stock price over time, which allows investors to sell their shares at a higher price than what they initially paid. Both of these components contribute to the overall gains that an investor can earn from their investment in a publicly traded stock.

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  • 27. 

    The gains from an investment in a bond would include these two components:

    • A.

      Dividend and Capital Appreciation

    • B.

      Coupon and Return of Principal

    • C.

      Return of Principal and Dividend

    • D.

      Profits and Losses

    Correct Answer
    B. Coupon and Return of Principal
    Explanation
    The gains from an investment in a bond include both the coupon payments and the return of principal. The coupon payments are periodic interest payments made by the bond issuer to the bondholder. These payments represent the interest earned on the bond investment. The return of principal refers to the repayment of the initial investment amount when the bond reaches its maturity date. Both components contribute to the overall gains from investing in a bond.

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  • 28. 

    Ten years ago, an investor bought 100 shares of Home Depot for $20.00 per share.  Today, the investor still owns these same 100 shares of Home Depot and the share price has gone up to $35.00 per share.  The appreciation in the stock price has provided the investor with an overall CAPITAL GAIN "on paper" of:  

    • A.

      $20.00

    • B.

      $500.00

    • C.

      $1,500.00

    • D.

      $3,500.00

    Correct Answer
    C. $1,500.00
    Explanation
    The investor bought 100 shares of Home Depot for $20.00 per share ten years ago. The current share price is $35.00 per share. To calculate the overall capital gain "on paper," we need to find the difference between the current value of the shares and the initial investment. The difference is $35.00 - $20.00 = $15.00 per share. Since the investor owns 100 shares, the overall capital gain is $15.00 * 100 = $1,500.00.

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  • 29. 

    While the stock market has higher risk than a savings account, the good news is that the long-term returns of the market average are higher and average about 8% per year.  The other positive about the stock market is this 8% annual return is fixed and can be counted on returning that amount every year with little to no variation.  

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The explanation for the given correct answer (False) is that the statement is incorrect. The stock market does not have a fixed 8% annual return that can be counted on every year with little to no variation. The returns of the stock market can vary significantly and are influenced by various factors such as market conditions, economic trends, and individual company performance. Therefore, investing in the stock market involves higher risk and potential for higher returns, but there is no guarantee of a fixed 8% annual return.

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  • 30. 

    The Ima Spender/Mia Saver example that we worked through in class:

    • A.

      If you save more, it doesn't matter when you save (your age when you are saving), as you will always be further ahead.

    • B.

      Due to the powerful impact of compound interest, investing for retirement early in one's career is highly recommended.

    • C.

      Ima Spender invested $72,000 as compared to $24,000 that Mia saved which explains why Ima Spender had a higher accumulated balance at the age of 65.

    • D.

      The 7% rate of return that we calculated can be achieved by putting money in a savings account.

    Correct Answer
    B. Due to the powerful impact of compound interest, investing for retirement early in one's career is highly recommended.
    Explanation
    Investing for retirement early in one's career is highly recommended because of the powerful impact of compound interest. Compound interest allows the initial investment to grow exponentially over time. In the given example, Ima Spender invested $72,000 compared to Mia's $24,000. Even though Mia saved less, Ima Spender had a higher accumulated balance at the age of 65 because of the compounding effect of the 7% rate of return. This demonstrates the advantage of starting to invest early and allowing the investment to grow over a longer period of time.

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  • 31. 

    Which of the following is NOT a characteristic of the "new school" of retirement planning?

    • A.

      Most popular plans are 401k plans in which your employer may make a matching contribution

    • B.

      Value of retirement plans determined by decisions made by employee

    • C.

      There is a risk of a retiree outliving their retirement funds

    • D.

      Retirement plans stay with the company so if the employee leaves, they lose those funds.

    Correct Answer
    D. Retirement plans stay with the company so if the employee leaves, they lose those funds.
    Explanation
    The "new school" of retirement planning focuses on individual responsibility and flexibility. It emphasizes the value of retirement plans being determined by decisions made by the employee, and acknowledges the risk of a retiree outliving their retirement funds. However, it does not advocate for retirement plans staying with the company. Instead, it encourages portability and the ability for employees to take their retirement funds with them if they leave the company.

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  • 32. 

    CHECK ALL THAT APPLY.  Which factors are important in selecting a stock mutual fund to invest in?

    • A.

      Expense ratio

    • B.

      Long-term performance

    • C.

      Quality of the investment team managing the mutual fund

    • D.

      Interest Rate

    • E.

      Riskiness

    Correct Answer(s)
    A. Expense ratio
    B. Long-term performance
    C. Quality of the investment team managing the mutual fund
    E. Riskiness
    Explanation
    The factors that are important in selecting a stock mutual fund to invest in include the expense ratio, long-term performance, quality of the investment team managing the mutual fund, and riskiness. The expense ratio is important because it directly affects the returns on the investment. Long-term performance indicates the fund's track record and potential for future growth. The quality of the investment team is crucial as their expertise and decision-making skills can impact the fund's performance. Lastly, considering the riskiness of the fund helps investors assess their tolerance for potential losses.

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  • 33. 

    CHECK ALL THAT APPLY.  What psychological tactics did you see on display with the short video we saw with Vin Diesel convincing a doctor to make an investment in the movie "Boiler Room?"

    • A.

      People don't like to see others around them getting wealthy and will take risks to try and keep up with their peers.

    • B.

      It is human nature to want something (for example, a stock) that is in demand and where there might some urgency to take advantage of an opportunity (recall how Vin got his trading floor to make a lot of noise).

    • C.

      Investors are willing to rely on "experts" who can sound extremely confident about a financial product they are "selling."

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    The short video with Vin Diesel convincing a doctor to invest in the movie "Boiler Room" displayed several psychological tactics. Firstly, it highlighted the tendency of people to feel envious or motivated by seeing others around them getting wealthy, leading them to take risks to keep up with their peers. Secondly, it emphasized the human nature of wanting something that is in demand and creating a sense of urgency to take advantage of an opportunity, as demonstrated by Vin Diesel making a lot of noise on the trading floor. Lastly, it showcased the willingness of investors to rely on confident-sounding "experts" who are selling a financial product.

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  • 34. 

    Which of the items below is NOT a rule for creating wealth for the long-term?

    • A.

      Start early

    • B.

      Buy and hold

    • C.

      Invest all of your money in a bank savings account

    • D.

      Diversify

    Correct Answer
    C. Invest all of your money in a bank savings account
    Explanation
    Investing all of your money in a bank savings account is not a rule for creating wealth for the long-term because savings accounts typically offer low interest rates, which may not keep up with inflation. In order to generate significant wealth over time, it is important to explore other investment options that offer higher potential returns, such as stocks, bonds, real estate, or mutual funds. Diversifying investments across different asset classes can help mitigate risk and increase the likelihood of long-term wealth accumulation.

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  • 35. 

    Which of the following investments would provide an investor with diversification?

    • A.

      Investing in a single company’s stock

    • B.

      Investing in a single company’s bonds

    • C.

      Putting your money in a savings account

    • D.

      Buying a mutual fund that holds the stock in fifty companies

    Correct Answer
    D. Buying a mutual fund that holds the stock in fifty companies
    Explanation
    Investing in a single company's stock or bonds would not provide diversification as it involves putting all of the investor's money into a single investment. Putting money in a savings account also does not provide diversification as it is a low-risk investment with limited potential for growth. However, buying a mutual fund that holds the stock in fifty companies would provide diversification as it spreads the investor's money across multiple companies, reducing the risk associated with investing in a single company.

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  • 36. 

    Mark ALL that apply.  Circle the letter for ALL the statements below that are TRUE about 401K plans.  

    • A.

      A 401K is a retirement savings plan that an investor makes contributions to through deductions from their payroll at the company they work for.

    • B.

      A 401K plan is portable in that it stays with the employee even after they have left their company

    • C.

      Company’s will often provide a matching contribution to what an employee contributes to their 401K plan (e.g., if an employee contributes $200, the employer could provide a $100 matching contribution)

    • D.

      It pays to start saving immediately in a 401k plan because of the impact of compounding over a long period of time.

    Correct Answer(s)
    A. A 401K is a retirement savings plan that an investor makes contributions to through deductions from their payroll at the company they work for.
    B. A 401K plan is portable in that it stays with the employee even after they have left their company
    C. Company’s will often provide a matching contribution to what an employee contributes to their 401K plan (e.g., if an employee contributes $200, the employer could provide a $100 matching contribution)
    D. It pays to start saving immediately in a 401k plan because of the impact of compounding over a long period of time.
    Explanation
    A 401K is a retirement savings plan that an investor makes contributions to through deductions from their payroll at the company they work for. A 401K plan is portable in that it stays with the employee even after they have left their company. Company’s will often provide a matching contribution to what an employee contributes to their 401K plan (e.g., if an employee contributes $200, the employer could provide a $100 matching contribution). It pays to start saving immediately in a 401k plan because of the impact of compounding over a long period of time.

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