AnswersOK-Personal Financial Literacy S1 – EDGNTY-83861 26-27Investment Strategies

Investment Strategies — Unit test Answers

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1
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When discussing a loan, interest rates are expressed as a percentage of the

A
investment fees.
B
the principal.
C
the profit.
D
taxes owed.
2
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Changes in monetary policy occur when the Federal Reserve

A
adjusts business laws to affect the money supply.
B
changes taxation levels to affect the economy.
C
changes spending levels to affect the economy.
D
adjusts interest rates to affect the money supply.
3

Which of these affect real investment value? Check all that apply.fees and expensesinflationnominal interest ratepretax returnstaxes

A
fees and expenses
B
inflation
C
nominal interest rate
D
pretax returns
E
taxes
4

How does time generally affect the risk of an investment?

A
Short-term investments are generally less risky than long-term investments.
B
Long-term investments are generally more risky than short-term investments.
C
Time has no effect on the risk of an investment.
D
Short-term investments are generally more risky than long-term investments.
5

The graph shows examples of investments with high and low liquidity.

Question illustration
A
knows they will need cash in the near future.
B
knows they will need cash years from now.
C
wants to have a guaranteed source of income.
D
wants to have higher returns on their investment.
6

An entrepreneur keeps backup funds in a savings account so that if their business experiences a loss, they will be able to recuperate. What type of risk management is this an example of?

A
reducing risk.
B
sharing risk.
C
avoiding risk.
D
maximizing risk.
7

Which investor is making a common error?

A
an employee of a popular hardware store who invests only in that company’s stock
B
an employee of a popular software company who invests in many similar companies
C
someone who sells the slumping stock while they are still able to make a profit based on what they paid
D
someone who buys stock in both domestic and more risky international companies
8

Who regulates markets where investments are traded?

A
individual investors
B
the federal government
C
corporate entities
D
financial institutions
9

Which are common mistakes people make when investing? Choose four answers.They put all of their money into one kind of investment at a time. They divide their funds between more risky and less risky options.They analyze their comfort level with the types of risk they will take. They invest more money than they can afford.They focus heavily on familiar investment opportunities. They hold onto investments longer than they should to recoup losses.

A
They put all of their money into one kind of investment at a time.
B
They divide their funds between more risky and less risky options.
C
They analyze their comfort level with the types of risk they will take.
D
They invest more money than they can afford.
E
They focus heavily on familiar investment opportunities.
F
They hold onto investments longer than they should to recoup losses.
10

How is a 401k different from an individual retirement account (IRA)?

A
A 401k is a good long-term investment strategy.
B
A 401k allows people to contribute before taxes.
C
A 401k is created by an individual who deposits money.
D
A 401k is created by an employer who may match contributions.
11

Which statement best describes how inflation affects the value of investments over time?

A
It erases the value of investments.
B
It increases the value of money.
C
It decreases the value of money.
D
It controls the value of investments.
12

When an insurance company needs to provide a payout, the money is removed from

A
the consumer’s income.
B
a bank loan.
C
a pool of funds.
D
the consumer’s account.
13

Most people prefer to pay health insurance premiums rather than pay out-of-pocket for medical expenses because

A
people are cautious and believe they are less likely to get sick if they have health-insurance coverage.
B
doctors and hospitals always provide better care to people who have health insurance.
C
people still feel more secure with a health insurance policy, even though out-of-pocket costs are often lower.
D
medical costs can be extremely high, and insurance is more affordable than paying out-of-pocket for a hospital stay.
14

actualfutureinflatedstated

A
actual
B
future
C
inflated
D
stated
15

Changes in monetary policy have the greatest effect on

A
income tax rates.
B
service fees and expenses.
C
demand for investments.
D
government spending.
16

Which characteristic is most important in determining an investment’s level of risk?

A
popularity
B
predictability
C
price
D
prominence
17

Which is a commodity someone might invest in?

A
a mutual fund
B
natural resources
C
government bonds
D
a certificate of deposit
18

Which statement is true of the relationship between risk and return?

A
The greater the risk, the greater the potential return.
B
The relationship between risk and return is always the same.
C
The greater the risk, the lower the potential return.
D
The relationship depends on the individual investment.
19

What must happen in order for an insurance company to make a payout? Check all that apply. The insurance company must verify the claim.The insured party must file a claim.The insured party must purchase property.The insurance policy must be in place.The insured party must experience a covered loss.

A
The insurance company must verify the claim.
B
The insured party must file a claim.
C
The insured party must purchase property.
D
The insurance policy must be in place.
E
The insured party must experience a covered loss.
20

Which type of insurance policy would someone get to protect others only?

A
health insurance
B
life insurance
C
property insurance
D
disability insurance

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