5.03 The Fundamentals of Investing1. Harris is concerned about the effects of inflation on his investment returns. Which

statement best describes inflation?a. The rise in the general level of pricesb. The uncertainty about the return on an investmentc. The number of times something happens to moneyd. The projected value of an investment at the end of a specified time frame

2. The most common relationship between risk and return in investing can be stated as:a. higher risk indicates lower returnb. higher risk indicates higher returnc. lower risk indicates higher returnd. No relationship exists between risk and return

3. Elliot’s stock broker is suggesting that he consider investing in a diversified portfolio. A diversified portfolio is desirable because it:a. increases the risk/return ratiob. limits investors choices to only one or two investment toolsc. indicates an investor is a good predictor of the return an investment will haved. decreases risk by investing money in a variety of investment tools

4. Which of the following is no t true in regards to investing in stock?a. A stockholder owns a part of a company.b. Depending upon the current market price, stockholders may pay different prices for

the same stock.c. A stockholder may or may not receive a dividend.d. A stockholder will always receive a profit when the stock is sold.

5. Conner wants to purchase stocks with the money he received from his tax return. Who would he contact to make the transaction?a. A brokerage firmb. The New York Stock Exchangec. A real estate agentd. Conner should complete this transaction on his own

6. Which statement is TRUE of mutual funds?a. Mutual Funds are speculative investmentsb. Mutual Funds are diversified investmentsc. Mutual Funds are a form of real estate investmentd. Mutual funds are superior purchasing to a single stock

7. A bond is:a. A type of debt that a company issues to investors for a specified period of time.b. A share of ownership in a company.c. A type of investment that is only offered by depository institutions.d. A type of investment that has the potential for significant fluctuations over a short

period of time.

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8. Alisa is looking for an investment that is structured to have tax benefits. She should look for information on:a. Tax rated bondsb. Speculative investmentsc. Index fundsd. Tax‐advantaged investments

9. It is best to have the rate of return on an investment than the rate of inflation.a. Lower, in order to minimize taxesb. Lower, in order to minimize riskc. Higher, to maintain purchasing powerd. Higher, to minimize risk

10. Which of the following statements is true in regards to paying taxes on investments?a. Since investments are considered unearned income, taxes do not have to be paid

on earnings.b. Taxes are often owed on profits generated from investments.c. Taxes only have to be paid on employer‐sponsored investment accounts.d. Taxes are always paid on investments either when the money is placed in the investment or

removed from the investment.