Basics Beginner: Investments

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
If you own a bond with an interest rate of 4% and rates increase to 5%, what will happen to the value of the bond if you try to sell it?
Choose wisely. There is only one correct answer.
It will decrease. If interest rates rise, the price of the bond on the market will decline because investors will seek bonds with these new, higher rates. This occurs with US government bonds too, and if you were to sell it before it matures, you would sell for less than you invested. If you hold the US government bond until its maturity date, you will receive all of your principal back.
2.
Professional management is a benefit of investing in an index mutual fund.
Choose wisely. There is only one correct answer.
False. Index funds are passively managed mutual funds, meaning the portfolios simply mirror an index like the SP 500. Actively managed funds have continuous monitoring and management from investment professionals.
3.
Asset allocation is associated with determining how many stocks you will hold in your stock portfolio.
Choose wisely. There is only one correct answer.
False. Asset allocation is associated with determining how much you will allocate to an asset class like stocks, bonds, and cash. The number and types of stocks you have in your portfolio has to do with diversification.
4.
What is the most commonly used type of cash investment?
Choose wisely. There is only one correct answer.
Savings account. A savings account is made up of cash you deposit, but unlike the cash in your pocket, it pays some interest to you.
5.
During your retirement years, what do you need your investments to do the most of for you?
Choose wisely. There is only one correct answer.
Provide income. During your later years, you will need money to live on, and that will ideally come from your investments. Although growth is good, it also comes with risk, which you don't want during your retirement.
6.
What results when you sell an investment for more than you paid for it?
Choose wisely. There is only one correct answer.
A capital gain. It can be thought of as a gain on the capital invested.