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In mutual funds, a sales charge is used to compensate the mutual fund manager.

True

False

False. It is to compensate the financial advisor for providing advice. The expense ratio is what compensates the mutual fund manager.

The interest you earn on a savings account or similar cash investment is not taxed as ordinary income by the federal government.

True

False

False. Interest is taxed as ordinary income at both the state (if you are required to pay state taxes) and federal levels.

When inflation occurs, it means a dollar in the future will be worth more than a dollar today.

True

False

False. Inflation causes the price of products and services to go up over time, so a dollar today will not buy the same amount of products and services in the future.

As a general rule, which type of investment earns the highest rates?

Stocks

Bonds

Cash

Stocks. As a rule, stocks earn the highest rates because their returns are not fixed. Of course, they also have the highest risks.

If an investor has a time horizon of 18 months to invest for a specific goal, they should consider investing what percentage of their investment dollars in stocks?

20%

30%

50%

0%. In general, 18 months is too short a time period to invest in stocks due to the chance for short-term price swings. You increase the risk of loss if you have a short timeline until needing to sell your stock investments. A general rule when buying stocks is that investors should be willing to hold stocks for five years or longer.

When you invest in a bond you are guaranteed to receive your principal back because bonds have a maturity date and fixed term.

True

False

False. Only US government bonds have a guaranteed return of principal if the bond is held to maturity.