Personal Finance Building Your Future 2nd Edition By Robert Walker – Test Bank

Chapter 11 Investment Basics

1) Money needed in the next 9 months should be put into a ________.
A) savings account
B) short-term certificate of deposit
C) U.S. Treasury bill
D) All options are correct.

Answer: D
Difficulty: 1 Easy
Topic: Investment choices and considerations
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

2) Inflation is
A) always bad for the economy.
B) helpful to an incumbent seeking re-election.
C) the increase of prices for goods and services over time.
D) a necessity to strengthen the dollar.

Answer: C
Difficulty: 2 Medium
Topic: Time value of money – interest rates and inflation
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

3) The value of a dollar is
A) driven by the stock market.
B) steadily increasing.
C) controlled by the U.S. Treasury.
D) related to inflation.

Answer: D
Difficulty: 2 Medium
Topic: Time value of money – interest rates and inflation
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

4) The value of a dollar is ________.
A) driven by the stock market
B) controlled by Congress
C) controlled by the U.S. Treasury
D) refers to its purchasing power

Answer: D
Difficulty: 2 Medium
Topic: Time value of money – interest rates and inflation
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

5) ________ is a form of compensation for the investor who takes on the risk of the investment.
A) Risk premium
B) Interest
C) Coupon payment
D) All options are correct.

Answer: D
Difficulty: 2 Medium
Topic: Investment risks and measures
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

6) ________ is money set aside for future use in a secure, no-risk instrument.
A) An investment
B) Savings
C) Discipline
D) Allocation

Answer: B
Difficulty: 1 Easy
Topic: Savings plan features and considerations
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

7) ________ is an outlay of money for a profit, where the risk exists that either some or the entire original amount may be lost.
A) An investment
B) Savings
C) Discipline
D) Risk premium

Answer: A
Difficulty: 1 Easy
Topic: Investment goals
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

8) The first question to ask when deciding whether to save or invest is:
A) How much money do I have in an emergency fund?
B) When will I need the money?
C) Is the money insured?
D) Can I get at least 10% return on this money?

Answer: B
Difficulty: 1 Easy
Topic: Investment goals
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

9) Where should Elena put her graduation gift money of $5,000 if she plans to use it to help fund a European trip in four years?
A) In a short-term, safe, insured, guaranteed investment
B) In an index mutual fund
C) In gold or other precious metals
D) Under her mattress

Answer: A
Difficulty: 2 Medium
Topic: Investment goals
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

10) Which of the following investments would be considered the most appropriate savings vehicle for an emergency fund?
A) Savings account
B) Certificate of deposit
C) Blue chip stocks
D) Rare jewels

Answer: A
Difficulty: 2 Medium
Topic: Savings plan features and considerations
Learning Objective: 11-01 Distinguish between savings and investments.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation