Basics Beginner: Investments

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1.
Which of the following is not a characteristic of a cash investment?
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Moderate return. Cash investments have historically provided low returns because they are safe and liquid.
2.
If you see letters such as AAA, BB, A, etc. in the financial news media and they are in reference to bonds, what are they referring to?
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Credit ratings of the companies that sell the bonds. These letters describe the credit ratings of the companies that sell the bonds. The closer they are to AAA, the better the health of the company, and therefore the less risky they will be.
3.
What results when you sell an investment for more than you paid for it?
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A capital gain. It can be thought of as a gain on the capital invested.
4.
Compound interest is interest that is calculated only on the principal you invest.
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False. Compound interest is interest that is calculated on the principal you invest plus any interest you earn.
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.
Professional management is a benefit of investing in an index mutual fund.
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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.