Types of Investments
What is a stock?
A percentage of a company that pays you dividends.
What is the difference between confirmation bias and hindsight bias?
Confirmation bias is only searching information that agrees with you, while hindsight is thinking you were always right after something happens.
If you bought 20 shares of stock in JumpsALot Jumpropes, and the shares were $68 per share, how much profit would you make if you sold the stock later for $125?
$1140
If Janet has only a small portion of her money to put into a 401(k), should she still invest in it or save the money to be invested elsewhere? Why?
She should still invest in the 401(k) because the company will match her investment, essentially doubling her money before any interest is taken.
What is a bond fund?
Investors pool money together and a manager buys hundreds or thousands individual bonds.
What is a bond?
A loan given to a company or government which will be paid back at the maturity date.
What is the difference between a savings account and investment accounts?
Savings accounts do not have as much return as other investments, but are a lot less risky.
If Sheryl is investing 7% of her salary into a 401(k) and her salary is $89500, how much will her company match her?
$6265
If a large sum of people is exiting the stock market, does that mean you should also exit?
No, it is important to make financial decisions that are not influenced by others because everyone's financial decisions are personal and different.
What is inflation?
General increase of prices over time that decreases the buying power of money.
What is a 401(k)?
A retirement investment where the company will match your amount that you invest up to a point before interest happens.
What is the difference between compound interest and simple interest?
Compound interest grows exponentially, while simple interest grows linearly.
If Judy puts $40 into her savings account with 2% interest rate and ends up with $15 in interest, how long did Judy leave the money in the savings account.
How long should you leave an investment for and why?
At least 5 years, because on average investments tend to increase after that period, reducing the risk of investing.
What is compound interest?
Interest that builds on older interest to increase investments exponentially. The formula is
A = P(1+(r/n))^(nt)
What is a Roth IRA
A retirement investment account that works with before tax money.
What is a stock versus a bond?
A stock is shared ownership of a company where you get paid in dividends, while a bond is a loan you give out to a company or government that provides regular interest.
An investor withdraws $18750 after investing in a bond for 35 years with a compound interest rate of 5% compounded quarterly. How much did the investor originally invest? Round to the nearest cent.
$3293.80
What are the key strategies to reduce risk when it comes to investing.
Diversify your investments across multiple assets, wait for 5 years before withdrawing, and buy at low price and sell at a higher price.
What is an Asset Class?
A group of investments with similar behaviors, such as stocks, bonds, index funds, etc.
What is a traditional IRA?
A type of retirement account that works with after taxes money.
What is the main difference between a Roth IRA and a Traditional IRA?
Roth IRA use money before taxes while traditional IRAs use money after taxes.
An investor invests $2500 in a stock that has a compound interest rate of 7.5% for 15 years monthly. Find the amount of that the investor will withdraw after that time. Round to the nearest cent
$7673.63
A stock has a compound interest rate of 3% compounded quarterly, while another investment account has a simple interest rate of 10% that builds every month. Which is the better investment for the long term?
The compound interest rate is the better long term investment, as interest builds exponentially, rather than the simple interest building linearly.
What is a principal investment?
The original amount put into an investment.