Consumer- Chapter 8

Question 1

long-term investments properly diversified include the following mutual funds…

Answer 1

growth, growth and income, international, excessive growth

Question 2

Which of the following is a good investment option?

Answer 2

mutual funds

Question 3

Which statement is true about liquidity?

Answer 3

both a and b

Question 4

A reason that people need to save and invest is to…

Answer 4

enable their money to make money

Question 5

Company X’s board of directors has decided to issue a portion of its earnings to its shareholders. If you own stock in Company X, you can expect to receive a(n)…

Answer 5

dividend

Question 6

The benefits of diversification in your investment is…

Answer 6

reduce risk

Question 7

To ensure that some of your retirement savings will not be subject to income tax among withdrawal you will contribute to a what?

Answer 7

Roth IRA

Question 8

A young investor willing to take the moderate risk for above-average growth would be most interested in…

Answer 8

mutual funds

Question 9

In some cases, employers will match employee contributions but you should fund your plan whether your company matches or not, this refers to…

Answer 9

401K

Question 10

A retirement plan found nonprofit organizations such as churches, hospitals, and schools…

Answer 10

403B

Question 11

When buying and selling investments you should not…

Answer 11

switch your investment strategy often based on market conditions

Question 12

Employee benefits packages should…

Answer 12

non-wage compensation provided to employees along with their regular wages

Question 13

A savings account sold by an insurance company designed to provide payments to the holder in specific intervals to save money usually after retirement…

Answer 13

annuity

Question 14

Which of the following statements about the stock market is false?

Answer 14

Formed in 1792, the New York Stock Exchange (NYSE) is the smallest organized exchange in the United States

Question 15

T or F: Money markets are great for emergency funds due to their liquidity and stability

Answer 15

true

Question 16

T or F: The purpose of war bonds is to finance army options during war times. The last time the U.S. issued war bonds was during the Vietnam War.

Answer 16

false

Question 17

T or F: A mutual fund portfolio that is properly diversified will have all investment dollars located in just one of four different classes of financial assets

Answer 17

false

Question 18

T or F: Single stocks and mutual funds carry the same amount of risk

Answer 18

false

Question 19

T or F: You can start investing with a small amount of money

Answer 19

true

Question 20

T or F: A good investment portfolio is extremely complex

Answer 20

false

Question 21

T or F: You should start investing as soon as you have your college education funded

Answer 21

true

Question 22

T or F: If you leave a job and have money saved in your employer’s retirement plan you always roll that money into an IRA using a direct rollover then you avoid taxes and penalties

Answer 22

true

Question 23

T or F: If you get into financial trouble, borrowing against your retirement plan is a good option

Answer 23

false

Question 24

T or F: Savings and investing have nothing to do with the amount of money you make

Answer 24

true

Question 25

Quality of an asset that permits it to be converted quickly into case without loss of value; availability of money

Answer 25

liquidity

Question 26

Relationship of substantial reward compared to the amount of risk taken

Answer 26

risk return ratio

Question 27

a list of your investments

Answer 27

a portfolio

Question 28

piece of ownership in a company, mutual fund, or other investment

Answer 28

a share

Question 29

securities that represent part ownership or equity in a corporation

Answer 29

stocks

Question 30

Money that is invested, either tax-deferred or tax-free, within a retirement plan

Answer 30

tax favored dollars

Question 31

the government agency responsible for regulating the stock market

Answer 31

securities exchange commission

Question 32

the federal agency responsible for collecting taxes and for the interpretation and enforcement of the Internal Revenue Code

Answer 32

the IRS

Question 33

Distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders

Answer 33

dividend

Question 34

a savings plan operated by a state or educational institution designed to help families set aside funds for future college costs

Answer 34

A 5-29 plan

Question 35

Explain why you should never invest using borrowed money.

Answer 35

because it increases the risk of investment and if you lose the money, you are still left with payments

Question 36

Explain the risk-return ratio

Answer 36

used by investors to compare the expected returns of an investment to the amount of risk they take to get the returns

Question 37

Why do single stocks carry a high degree of risk? Why do mutual funds carry less risk?

Answer 37

• Single stocks carry a high degree of risk because there is no diversification in investment.
• Investing in mutual funds ensures diversification and lowers risk

Question 38

What is the Rule of 72? How is it calculated?

Answer 38

a quick way to calculate the length of time it will take to double a sum of money; calculated by dividing 72 by the expected interest rate to determine the number of years it will take to double your sum of money

Question 39

Is real estate a liquid investment? Explain your answer.

Answer 39

No, not a liquid investment; takes time and consideration of the current market to sell real estate, making it difficult to access your investment dollars