Question 1

Once you have developed an asset allocation plan for your investments,you never need to adjust it.

Accepted Answer

Asset allocation plans should be periodically reviewed and adjusted as the investor's goals, risk tolerance, and market conditions change. It is important to ensure that the portfolio remains diversified and aligned with the investor's objectives.

Question 2

The amount of time that your investments have to work for you is an important factor when managing your investment portfolio.

Accepted Answer

The amount of time that your investments have to work for you is known as the "time horizon" and is a critical factor to consider when managing your investment portfolio. Time horizon refers to the length of time you plan to hold your investments before you sell them, and it impacts your investment strategy, risk tolerance, and potential returns. The longer your time horizon, the more time your investments have to compound and potentially grow in value. Conversely, if you have a short time horizon, you may need to focus on more conservative investments to preserve your capital.

Question 3

Liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.

Accepted Answer

Liquidity is the ability to quickly and easily convert an investment into cash without causing a significant change in its price or value. This is an essential characteristic of an investment because it allows investors to access their funds when needed without incurring significant losses. Therefore, the statement is true.

Question 4

A speculative investment is a high-risk investment that is made in the hope of earning a relatively large profit over a long period of time.

Accepted Answer

A speculative investment is considered high-risk with the potential for substantial profit, but the expectation of returns is typically over a short to medium term, not necessarily a long period.

Question 5

The first step to creating an investment plan is to establish investment goals.

Accepted Answer

Establishing investment goals is crucial in creating an investment plan as it helps to determine what you want to achieve with your investments and how much risk you are willing to take.

Question 6

There is no relationship between risk and safety.

Accepted Answer

Risk and safety are related concepts. Safety measures are put in place to reduce the likelihood or severity of a risk occurring. Therefore, the higher the level of risk, the greater the need for safety measures to mitigate that risk.

Question 7

An investment that an investor expects will increase in value is known as a growth investment.

Accepted Answer

This statement is true. A growth investment is one where investors purchase assets that they believe will increase in value over time, resulting in capital gains. These investments are typically associated with stocks and mutual funds, which tend to have high growth potential but also higher risk.

Question 8

During periods of high inflation,there is a risk that the financial return on an investment will not keep pace with the rate of inflation.

Accepted Answer

During high inflation, the value of money decreases and the cost of goods and services increases. This means that the return on an investment may not be able to keep up with the rate of inflation, lowering the real value of the investment over time.

Question 9

The U.S.government is the world's largest provider of investment information.

Accepted Answer

The answer of The U.S.government is the world's largest provider...

Question 10

Generally,options are conservative,long-term investments.

Accepted Answer

Options are typically considered speculative investments and are used for short-term strategies due to their time-sensitive nature.

Question 11

Younger investors tend to invest a large percentage of their nest egg in growth-oriented investments.

Accepted Answer

Younger investors have more time to ride out market fluctuations and are more comfortable with risk, so they tend to invest a larger portion of their portfolio in growth-oriented investments such as stocks and mutual funds.

Question 12

With most investments,more information is available than you can read and comprehend.

Accepted Answer

This statement is true. With the vast amount of information available on investments, it is impossible to read and comprehend all of it.

Question 13

An emergency fund is an amount of money that can be obtained quickly in case of immediate need.

Accepted Answer

An emergency fund is specifically meant to be easily accessible and quickly obtainable in case of an emergency.

Question 14

A ceiling on a credit card is determined by the borrower and is the dollar amount that they want to borrow using the cash advance provision on their credit card.

Accepted Answer

A ceiling on a credit card limit is determined by the credit card issuer, not the borrower. It is typically based on factors such as credit history, income, and credit utilization. The cash advance limit may be a portion of the overall credit limit, but it is also determined by the credit card issuer, not the borrower.

Question 15

The rate of return on an investment has no effect on a long-term investment program.

Accepted Answer

The rate of return on an investment can have a significant impact on a long-term investment program. A higher rate of return can lead to greater accumulation of wealth over time, while a lower rate of return can impact the ability to reach long-term financial goals.

Question 16

Potential investors should not wait until their financial affairs are in good shape before starting an investment program.

Accepted Answer

Potential investors should prioritize getting their financial affairs in order, such as paying off high-interest debt and building an emergency fund, before starting an investment program. This will help ensure they have a solid financial foundation and can handle any potential risks associated with investing.

Question 17

Asset allocation is the process of spreading your assets among several different types of investments to lessen risk.

Accepted Answer

Asset allocation is indeed the process of diversifying investments to lower risk.

Question 18

The potential return on any investment should be directly related to the risk that the investor assumes.

Accepted Answer

This is a fundamental principle of investing. Investors expect to earn a higher return on high-risk investments and a lower return on low-risk investments. If an investment promised high rewards without significant risks, it would likely be too good to be true.

Question 19

The most important priority an investor in preferred stock enjoys is receiving cash dividends before common stockholders are paid any cash dividends.

Accepted Answer

This is because preferred stock is called "preferred" because it has priority over common stock when it comes to receiving dividends. However, preferred stockholders do not have voting rights in the company's decisions.

Question 20

A line of credit is a short-term loan that is approved before the money is actually needed.

Accepted Answer

A line of credit is a pre-approved loan that can be accessed when needed, and it is typically used for short-term financing needs. The borrower is only charged interest on the funds that are actually withdrawn, and the credit limit can be adjusted based on the borrower's needs and creditworthiness.

Quiz 13: Investing Fundamentals