Basics Beginner: Investments

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1.
The interest you earn on a savings account is taxed differently from the money you earn at your job.
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False. It is taxed the same way, that is, as ordinary income.
2.
What is time horizon?
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The length of time over which you will be investing your money. Your time horizon will be a factor when choosing investments.
3.
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.
4.
During your retirement years, what do you need your investments to do the most of for you?
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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.
5.
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.
6.
As a general rule, which type of investment earns the highest rates?
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Stocks. As a rule, stocks earn the highest rates because their returns are not fixed. Of course, they also have the highest risks.