Investing Practice Questions
1)When interest is calculated only on the principal amount of the investment, it is known as:
a)straight interest
b)simple interest
c)compound interest
d)calculated interest
e)all the above
2)A publicly traded corporation:
a)is traded on the stock market.
b)offers shares to the public.
c)is required to provide periodic financial statements.
d)is run by a board of directors.
e)all of the above.
3)Which of the following is the best example of a debt investment?
a)shares in a company.
b)government bonds.
c)real estate holdings.
d)antiques and collectibles.
e)lines of credit.
4)A debenture is a type of:
a)stock
b) bond
c)preferred stock
d) dividend payment
e)mutual fund
5)It is a good idea to borrow money in order to invest when:
a)interest rates are rising and the S&P is falling.
b)interest rates are falling and CPI is rising.
c)interest rates are rising and the CPI is falling.
d)interest rates are falling and the S&P is rising.
e)interest rates are steady and the S&P is steady.
6)Which of the following is a benefit of an RRSP?
a)Opportunity to save for your child’s education.
b)It can be cashed in at anytime without a financial penalty.
c)you can receiving tax deduction
d)you can receive annual dividends
e)None of the above
7)When investing in a corporation, bondholders get their money back when
a)the market demand decreases for the corporation’s products
b)there is a change of upper management in the corporation
c)the bond matures or they sell it to another investor
d)the bond expires
e)the corporation’s profits increase by 20 %
8)When interest is expressed as a percentage of the original investment, it is called
a)rate of return
b)yield
c)the loss rate
d)Both (a) and (b)
e)Both (b) and (c)
9)A pool of money from many investors that is set up and managed by an investment company to buy and sell securities of other corporations is called a(n)
a)investment fund
b)mutual fund
c)equity fund
d)balanced fund
e)combination fund
10)The simple interest amount, where the principal is $500.00, the rate is 5.5 percent, and the time is one year, would be
a)$25.00
b)$27.50
c)$7.50
d)$72.50
e)$20.50
11)A portion of a corporation's profit that is paid to shareholders is called a ______.
a)capital gain
b)net profit
c)stock
d)bond
e)dividend
12)Which of the following statements is correct?
a)It is always better to invest in stocks than in bonds.
b)The greater the risk, the greater the return.
c)If you invest in corporate bonds, your money is guaranteed by the government.
d)The greater the risk, the greater the potential for large returns or losses.
e)Investing in common shares is safer than investing in preferred shares.
13)Adam deposited $2,500 into a 30 day term deposit that has an annual interest rate of 6%. At the end of the 30 days, Adam will earn approximately ______in interest.
a)$13.22
b)$30.00
c)$33.12
d)$12.33
e)$123.29
14)Nadia's parents invest $5,000 in her name when she is 15 years old. The investment earns an annual rate of return of 9%. How old will Nadia be when her investment is worth $20,000?
a)20 years old
b)23 years old
c)28 years old
d)31 years old
e)35 years old
15)Compound interest means:
a)your money is managed by a fund manager
b)you can only collect your interest when the time period is over
c)you have put your money into a 90-day renewable term deposit
d)you earn interest on interest and principal
e)you earn, and are paid, interest every year
16)Which of the following is an advantage of preferred stock over common stock?
a)preferred shareholders get a vote for the Board of Directors
b)preferred shareholders are paid first if a company makes a profit
c)preferred stock always has a greater yield
d)preferred stock is more liquid
e)preferred stock dividends are never fixed
17)If a corporation earns a profit of $200,000, and $50,000 is to be distributed to the holders of 500 shares, the owner of one share will receive a dividend of
a)$10
b)$15
c)$40
d)$100
e)$400
18)Which of the following is a potential benefit of investing in stocks and not mutual funds?
a)Diversification
b)Economies of scale
c)Access to professional management
d)Liquidity
e)Higher returns – I’m assuming this, but not clear why? Some funds have done spectacularly.
19)Consider The Business Cycle. Pick the true statement.
a)A Depression always follows a Recession.
b)The ‘Trough’ phase is typically followed by a Recession.
c)The Recovery phase sees existing stock levels depleted, forcing businesses to increase production.
d)A smart business person would begin increasing production during the beginning of a Recession.
e)A business cycle is always between 8 and 10 years.
20)Tyler invested $500 at 4% interest. Tyler has approached you to figure out how long it would take to double his money. The answer would be….
a)18 years
b)288 years
c)28.8 years
d)20 years
e)8 years
21)Which of the following statements about savings plans for wage earners is true?
a)You pay income tax on RRSP contributions until you withdraw the funds
b)Term deposits offer a higher rate of interest than GICs.
c)With term deposits, usually, the shorter the term, the higher the rate of interest
d)A savings account is not suitable for those who want to avoid risk
e)People without a pension plan can make larger RRSP contributions than those with a pension
22)The savings plan in which you deposit a fixed sum of money for a specific length of time, at a fixed rate of interest is called a:
a)guaranteed investment certificate (GIC)
b)registered retirement savings plan (RRSP)
c)common stock
d)mutual fund
e)collectible
23)If $8,000.00 is compounded annually for 6 years at 5% interest, approximately how much would you have at the end of year 6?
a)$10,400.00
b)$50,400.00
c)$32,000.00
d)$10,720.77
e)$10,210.25
24)When investing, some investors spread their money over several investments in order to reduce risk. This is known as ______.
a)Buying on margin
b)diversifying
c)riding the yield curve
d)generating a rate of return
e)paying capital gains
25)Which of the following has the most potential for capital gains?
a)real estate
b)Canada Savings Bonds
c)a savings account
d)a one year term deposit
e)a five year term deposit
26)Why would you choose to put your money in a GIC versus a savings account?
a)The GIC is more liquid than a savings account
b)The GIC has a greater return than a savings account
c)The GIC is more risky than owning stock
d)all of the above
e)none of the above
27)The simple interest amount, where the principal is $1,500.00, the rate is 5.5 percent, and the time is one year, would be
a)$75.00
b)$81.50
c)$21.50
d)$225.50
e)$61.50
28)Given an economic forecast of low worldwide growth leading to declining demand for commodities, which of the following investment strategies would you recommend for a typical Canadian investor?
a)Purchase a Canadian Equity mutual fund
b)Invest all of your assets in an Oil and Gas stock
c)Purchase a Canadian Fixed Income mutual fund
d)Convert all of assets into a commodity based currency
e)Take a trip to Las Vegas and play the slot machines
29)Historically, the best performing asset class in North America over long periods of time has been?
a)Bonds
b)T-bills
c)Stocks
d)Real Estate
e)Gold
30)A term deposit is similar to a guaranteed investment certificate in that
a)Both are savings plans
b)Both accept money for a fixed period of time
c)Both pay a fixed rate of interest
d)All of the above
e)None of the above
The Financial Literacy Competition Practice Questions are the sole and exclusive property of the School of Accounting and Finance (SAF) at the University of Waterloo. Access to these questions are granted exclusively to teachers who have registered for the Financial Literacy Competition and are to be used to enhance teaching in the classroom. Registered FLC teachers can make sufficient copies of the Practice Questions for their students, but copying is limited to students within the academic year.