Investing Quiz
Questions: 16 · 10 minutes
1. A stock is purchased for $50, rises to $53, and pays a $2 dividend during the holding period. Ignoring taxes and trading costs, what is the total return?
4%
10%
6%
12%
2. Priya invests the same dollar amount in a broad fund every month, whether its price is higher or lower. What strategy is she using?
Dollar-cost averaging
Market capitalization weighting
Short selling
Leveraged investing
3. What does a share of common stock generally represent?
A loan to a company that must be repaid on a fixed date
A guaranteed claim to a fixed annual payment
A deposit insured against market losses
An ownership interest in a company
4. Why can maintaining an accessible emergency fund be useful before committing money to volatile long-term investments?
It guarantees that long-term investments will not lose value
It may reduce the need to sell investments during a downturn to cover an unexpected expense
It makes diversification unnecessary
It ensures that investment returns will exceed inflation
5. What is the usual objective of an index fund?
To guarantee a return above inflation each year
To select only the individual securities expected to rise fastest
To avoid every decline experienced by the broader market
To track the performance of a specified market index before fees and tracking differences
6. An investment earns a 4% nominal return during a year when inflation is 3%. Ignoring taxes and using a simple approximation, what happened to purchasing power?
It decreased by about 1%
It increased by about 3%
It increased by about 4%
It increased by about 1%
7. Two funds hold similar investments and earn the same return before expenses. On a $10,000 balance, Fund A charges 0.20% annually and Fund B charges 1.00%. Approximately how much more would Fund A leave after one year, all else equal?
$20
$100
$80
$800
8. A stock currently trades at $42, but Jordan does not want to pay more than $40 per share. Which order directly expresses that maximum purchase price?
A market sell order
A stop-loss order at $40
A limit buy order at $40
A market buy order
9. An investment falls from $100 to $80. What percentage gain is required for it to return from $80 to $100?
80%
20%
22%
25%
10. Maya will need her tuition money in nine months and cannot comfortably delay the payment. Which approach generally aligns best with that short time horizon?
Investing it in a concentrated portfolio of small-company stocks
Keeping it in liquid cash equivalents or short-term, high-quality fixed-income holdings
Choosing the stock fund with the strongest return last year
Investing it entirely in a volatile asset and waiting for a recovery if it falls
11. A portfolio's target is 60% stocks and 40% bonds. After stocks rise, the portfolio becomes 70% stocks and 30% bonds. Which action would most directly rebalance it toward the target?
Sell some stocks and buy bonds
Leave the allocation unchanged but rename the target
Move the entire portfolio into stocks
Buy additional stocks and sell bonds
12. What is the main purpose of diversification in an investment portfolio?
To reduce the effect that any single holding can have on the overall portfolio
To ensure that the portfolio earns a positive return every year
To concentrate money in the investments with the highest recent returns
To eliminate broad market risk from the portfolio
13. Leo is emotionally comfortable with market swings, but his income is unstable and he has substantial short-term obligations. Which statement best distinguishes his risk tolerance from his risk capacity?
Both are necessarily high because he is comfortable with volatility
His willingness to accept risk may be high, while his financial capacity to absorb losses may be lower
His capacity is high because unstable income creates more investing opportunities
Risk tolerance and risk capacity are two names for exactly the same concept
14. Which investment pitch presents the strongest fraud warning signs?
A promoter guarantees unusually high returns, demands immediate payment, and directs funds to a personal account
A regulated broker asks an investor to review risk disclosures before placing an order
A bond prospectus explains the issuer's repayment obligations and default risk
A diversified fund discloses that its value can rise or fall and publishes its fees
15. You invest $1,000 at 5% annual interest, compounded once per year. With no deposits or withdrawals, approximately how much will you have after two years?
$1,100.00
$1,105.00
$1,102.50
$1,150.00
16. When an investor buys a newly issued corporate bond, what is the investor generally doing?
Purchasing voting ownership in the company
Buying insurance against a fall in the company's stock price
Lending money to the company under stated repayment terms
Depositing cash in the company's bank account with deposit protection