Financial Literacy Program Quiz 4

Financial Literacy Quiz 4

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1. What is the primary purpose of investing?

To grow wealth over time through the use of financial assets

To guarantee immediate financial returns

To avoid paying taxes on savings

To store money securely for short-term use

2. Which of the following is a characteristic of mutual funds?

They are always risk-free investments

They are only available to institutional investors

They are designed to only invest in one company’s stock

They pool money from multiple investors to invest in diversified assets

3. What distinguishes an ETF (Exchange-Traded Fund) from a mutual fund?

ETFs guarantee higher returns than mutual funds

ETFs are limited to stocks, while mutual funds can only invest in bonds

ETFs are traded on stock exchanges like individual stocks, while mutual funds are bought or sold only at the end of the trading day

Mutual funds are always more diversified than ETFs

4. How does risk generally relate to the potential return on an investment?

Risk has no impact on the potential return

Higher risk typically leads to higher potential returns

Higher risk guarantees higher returns

Lower risk results in higher returns

5. What is a major factor to consider when selecting bonds as an investment?

The bond’s interest rate, credit rating, and maturity date

The average dividend yield of the bond issuer’s competitors

The level of risk in the real estate market

The number of stocks owned by the company issuing the bond

6. Why is starting early in retirement planning beneficial?

It eliminates the need for diversification in investments

It allows the investor to take advantage of compound interest over a longer period

It reduces the amount needed to contribute monthly

It guarantees no risk in investment returns

7. What type of retirement savings account is commonly used by employees to save for retirement through payroll deductions?

HSA

Roth IRA

IRA

401(k)

8. How does a Roth IRA differ from a traditional IRA?

Contributions to a Roth IRA are tax-deferred, like a traditional IRA

A Roth IRA allows for higher contribution limits

A Roth IRA has tax deductions for contributions but is taxed on withdrawals

Contributions to a Roth IRA are made with after-tax dollars, and withdrawals are tax-free in retirement

9. What is one major advantage of a stock market investment?

Stocks provide immediate cash flow

Stocks always maintain their value, regardless of market conditions

Stocks have the potential for high returns over time

Stocks are completely risk-free and guaranteed to grow

10. Why is diversification important in an investment portfolio?

It reduces the overall risk by spreading investments across different types of assets

It focuses investments on a single asset class to maximize growth

It guarantees the highest possible return

It ensures complete protection against market downturns

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Financial Literacy Program Quiz 4

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