Answers26-27 Ignite Economics-KY-EconomicsInvesting and Financial Markets

Investing and Financial Markets — Unit test Answers

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1
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A high-risk investment is characterized by

A
a greater percentage chance of loss.
B
superior prospects for short-term gains.
C
a smaller percentage chance of loss.
D
lower interest and compound interest rates.
2
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Yamuna is interested in investing money but wants to make sure that most of it will be available soon so she can buy a car. What is the best low-risk investment choice for her?

A
certificate of deposit
B
mutual fund
C
education account
D
stocks
3

are debt certificates that are purchased by an investor.

Answer not available
4

What is one way employers get employees to participate in a 401k?

A
by requiring them to participate unless they opt out
B
by requiring them to opt in if they want to participate
C
by giving them an annual pay raise
D
by giving them a signing bonus when they participate
5

Why is compound interest preferable to simple interest when investing?

A
Compound interest pays at least double the interest on the principal during each month.
B
Compound interest is paid by the week or by the month, not only once during a year.
C
Compound interest is based on the entire principal, not just a percentage of the principal.
D
Compound interest pays interest both on the principal and the interest earned in each period.
6

In which category do commodities belong?

A
long-term investment only
B
short-term investment only
C
either short- or long-term investment
D
neither short- nor long-term investment
7

Which is an example of a short-term investment?

A
savings bond
B
savings account
C
retirement fund
D
checking account
8

In what order should the following investment choices be placed, from least risk to highest risk?

A
short-term bonds, savings accounts, stocks, mutual funds
B
stocks, mutual funds, short-term bonds, savings accounts
C
savings accounts, short-term bonds, mutual funds, stocks
D
mutual funds, stocks, savings accounts, short-term bonds
9

Siva invests $100 into supplies to make cookies to sell. Each box of cookies costs $5. At what point has he hit the rate of return?

A
when he has made $100
B
when he makes a large profit
C
the moment he sells a box for $5
D
immediately upon buying the supplies
10

The graph shows the percentage changes in the investment rate and the gross domestic product (GDP) between 2008 and 2012.

Question illustration
A
can show if the economy is growing or shrinking.
B
occur only when the economy is shrinking.
C
occur only when the economy is growing.
D
have no relation to changes to the GDP.
11

How easily an investment can be exchanged for cash is known as

d
diversification.
r
risk.
l
liquidity.
r
return.
12

Lauren is trying to find her net income. She used the statement and the steps shown.Step 1List all income, including tips and commissions, and list all expenses, including food, entertainment, and clothing.Step 2Total all the income. Then total all the expenses.Step 3Add the total of the income and the expenses.Which explains Lauren’s error?

Question illustration
L
Lauren made an error in step 1 because she should not include tips and commissions in her income.
L
Lauren made an error in step 1 because she should not include entertainment in her expenses.
L
Lauren made an error in step 2 because she does not need to total the expenses.
L
Lauren made an error in step 3 because she should have subtracted the expenses from the income.
13

Who is following the law when it comes to protecting investors’ funds?

A
a financial planner who pitches a risk-free stock
B
a mutual fund advisor who informs investors about risks
C
a broker who sells CDs from nonfinancial institutions
D
a realtor who advertises a can’t-miss land buy
14

The level of investment in markets often indicates

A
the stability of the government.
B
the state of the economy.
C
the success of individual companies.
D
the stability of a currency.
15

A bank offers both checking accounts and savings accounts.Why might someone transfer money from a checking account to the savings account?

A
Money in a savings account is held until retirement.
B
Money in a savings account will earn a small amount of interest.
C
Money in a savings account can quickly produce a large profit.
D
Money in a savings account is invested in the stock market.

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