Investing Practice Test

Why are Index Funds such a popular investing option?

They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500

Which index has companies that are so large that it captures 75% of the entire US stock market?

S&P500

One share price of a mutual fund is the…

NAV

The market capitalization of a company is ......

What a company is worth

Index funds are said to be _________________ because there are no manager or research teams involved.

Passively managed

When you buy stock you are becoming .......

Part owner

Which of the following accurately describes a difference between an individual bond compared to a bond fund?

A bond is considered to be a less diversified investment than a bond fund

Diversification means to .....

Spread around

What is a brokerage account used for?

It’s a type of account used to buy and sell stocks, bonds, and funds

If the "market" is up 23.8% at the end of the year and your portfolio is up 19.7% then you have…

Underperformed the market

Short selling is…

Selling securities then buying them

A recession is a ______________________.

severe downturn in the stock market and economy

Which index has only 30 companies and used to be industrial in nature?

DOW

This phrase means you borrow money to invest

Trading on margin

When someone simply looks at graphs and tries to make a prediction about the future performance (Cup and Handle or Head and Shoulders) of an investment this is known as "chartology" or .....

Technical analysis

How can someone make money from investing in a stock?

They receive dividends or they sell the stock at a higher price than what they bought it for

MSFT Microsoft) is trading $498.35 per share.  What number tells you if $498.35 is expensive or cheap?

PE ratio

Which phrase describes how well a company handles incoming shareholder money?

Return on Equity

Why is diversification a recommended investment strategy?

Diversifying your portfolio helps reduce risk

A mutual fund…

Lowers risk and creates diversification

Most mutual fund managers cannot beat a simple index fund. What percent of mutual funds have a return below the market average?

85%

What is the term for when a company shares its profits every quarter?

Dividends

A mutual fund is less risky because ______________________.

the money in the fund is spread out across many securities

How does investing in the stock market differ from putting money in a savings account at a bank?

Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies

What is the term that describes market "pricing in" all known information?

Discounting

Due diligence means you must do your own .....

Research

Why is it important for you to understand your risk tolerance before you start investing?

You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with

The average long term return rate on gold has been around…

4%

___________ refers to how easily something can be converted into cash.

Liquidity

A savings account where you receive a certificate and cannot touch the money for a year is called a ......

Bank CD

This is why people buy gold.

Hedge against inflation

A mutual fund type investment that trades like a stock on the NYSE or NASDAQ exchanges.

ETF

When you buy stock you become part owner. Because of this you get to ___________ on company issues.

vote

What someone is willing (offering) to pay for a particular equity on the open market?

Bid

When a company's share price has been rising and they want to attract new investors they may ____________ the stock.

Split

Which index represents mainly the technology sector?

NASDAQ

A debt instrument where you make a loan to some other entity.

Bond

Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?

ETF prices can change throughout the day as they are exchanged on the market

The highest return rate on a US Treasury Bond (30 year) is about ....

12%

What term describes buying securities (after due diligence) and holding forever?

Long

Which of the following statements is TRUE about compound interest?

Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned

When looking at a company on Yahoo Finance, which heading indicates how many shares have traded so far today?

Volume

Which of the statements below BEST describes the relationship between risk and return when considering an investment?

Investors expect to earn a higher return when they invest in a high risk asset

Another name for stock is .....

Equities

How is a bond different from a stock?

A bond is a loan you give to an organization while a stock is partial ownership in a company

What kinds of behaviors can PREVENT people from making smart investing decisions?

Exiting the market because that’s what everyone else is doing

The number of shares that a company has issued is called the ........

Float

Most people use ______________________ to invest in for retirement.

mutual funds

The average return on the DOW over the last 120 years is ......

12%

What are a couple of major obstacles for people who frequently jump in and out of securities?

Taxes, commissions, and fees

When you look at a potential company to invest in and you examine things like debt levels, revenue growth, and return on equity, you are doing a .......

Fundamental analysis