Basics Beginner: Investments

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1.
When a company shares some of its profits with its stockholders, what are those profits called?
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Dividends. Dividends are a cut of a company's profits that are shared with stockholders.
2.
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?
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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.
3.
During your working years, what do you need your investments to do the most of for you?
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Grow. If you are like most people, you will need your investments to grow so that when you are older, you can withdraw sufficient money from them to live on.
4.
The interest you earn on a savings account or similar cash investment is not taxed as ordinary income by the federal government.
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False. Interest is taxed as ordinary income at both the state (if you are required to pay state taxes) and federal levels.
5.
Investors with a long-term goal like retirement in 20 or more years who are willing to live with significant declines in the short run often choose to allocate a higher percentage of their investment dollars to ________.
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Stocks. Stocks have historically returned much higher returns than bonds and cash for long-term investors; however, the investor must be willing to live with significant declines in stock values over the short term and the potential of losing money.
6.
In mutual funds, a sales charge is used to compensate the mutual fund manager.
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False. It is to compensate the financial advisor for providing advice. The expense ratio is what compensates the mutual fund manager.