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.
The primary risk associated with cash investments is _______.
Choose wisely. There is only one correct answer.
Inflation. Cash investments provide safety of principal and liquidity. But because of this, they offer a very low rate of return, often lower than the rate of inflation.
2.
In mutual funds, a sales charge is used to compensate the mutual fund manager.
Choose wisely. There is only one correct answer.
False. It is to compensate the financial advisor for providing advice. The expense ratio is what compensates the mutual fund manager.
3.
As a general rule, which type of investment earns the highest rates?
Choose wisely. There is only one correct answer.
Stocks. As a rule, stocks earn the highest rates because their returns are not fixed. Of course, they also have the highest risks.
4.
Which bonds are subject to credit risk?
Choose wisely. There is only one correct answer.
Both municipal and corporate. Corporate and municipal bonds are subject to credit risk, and the value of their bonds can be impacted if the financial strength of the company or municipality declines.
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 ________.
Choose wisely. There is only one correct answer.
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.
Compound interest is interest that is calculated only on the principal you invest.
Choose wisely. There is only one correct answer.
False. Compound interest is interest that is calculated on the principal you invest plus any interest you earn.