Investing: Why You Should Diversify Practice Questions

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Practice Questions

Investing: Why You Should Diversify Practice Questions

1. There are three stocks available: a solar energy firm, an oil firm, and an airline. You can invest in two. Which two?  (Hint: think about the rule of diversification.) *

a. solar energy firm and oil firm

b. solar energy and airline firm

c. oil firm and airline firm

2. Which of the following would be the least risky thing for you to do if you work as a real estate agent? *

a. Invest in construction companies.

b. Buy a house.

c. Marry a doctor.

d. Buy mortgage-backed securities.

e. a and b only.

3. Let’s assume that your mutual fund grows at an average rate of 7% per year—before subtracting the fees. Using the rule of 70: Approximately how many years will it take for your money to double if fees are 0.5% per year? *

a. 8.1 years

b. 9.3 years

c. 10 years

d. 10.8 years

e. 11.2 years

4. Using the same assumption as question 3, and the rule of 70: Approximately how many years will it take for your money to double if fees are 1.5% per year  (not uncommon in the mutual fund industry)?   *

a. 8.2 years

b. 9.5 years

c. 10 years

d. 11.4 years

e. 12.7 years

5. Using the same assumption as question 3, and the rule of 70: Approximately how many years to double if fees are 2.5% per year?   *

a. 7.4 years

b. 11.5 years

c. 13. 5 years

d. 15.5 years

e. 16.3 years

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Investing: Why You Should Diversify Practice Questions

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