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.
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.
2.
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.
3.
As a rule, the longer your time horizon is for investing, the more aggressive you can be with your investments.
Choose wisely. There is only one correct answer.
True. This is due to the fact that you will have more time to recoup losses.
4.
One of the risks of investing in bonds is interest rate risk. This means that if interest rates rise, your bond will be earning less than new bonds.
Choose wisely. There is only one correct answer.
True. This is one risk of investing in bonds.
5.
The interest you earn on a savings account is taxed differently from the money you earn at your job.
Choose wisely. There is only one correct answer.
False. It is taxed the same way, that is, as ordinary income.
6.
Professional management is a benefit of investing in an index mutual fund.
Choose wisely. There is only one correct answer.
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.