Investor Literacy Quiz

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This 10 question quiz is about investment literacy. This quiz was created by FINRA.

If a company files for bankruptcy, which of the following securities is most at risk of becoming virtually worthless? *

1 point

The company's preferred stock

The company's common stock

The company's bonds

Don't know

You invest $500 to buy $1,000 worth of stock on margin. The value of the stock drops by 50%. You sell it. Approximately how much of your original $500 investment are you left with in the end? *

1 point

$500

$250

Don't know

Which of the following best explains the distinction between nominal returns and real returns? *

1 point

Nominal returns are pre-tax returns; real returns are after-tax returns

Nominal returns are what an investment is expected to earn; real returns are what an investment actually earns

Nominal returns are not adjusted for inflation; real returns are adjusted for inflation

Nominal returns are not adjusted for fees and expenses; real returns are adjusted for fees and expenses

If you buy a company’s bond… *

1 point

You own a part of the company

You have lent money to the company

You are liable for the company’s debts

You can vote on shareholder resolutions

Don’t know

In general, investments that are riskier tend to provide higher returns over time than investments with less risk *

1 point

True

False

Don't know

What has been the appropriate average annual return of the S&P 500 stock index over the past 20 years? *

1 point

-10%

-5%

10%

15%

20%

If you buy a company’s stock… *

1 point

You own a part of the company

You have lent money to the company

The company will return your original investment to you with interest

Don't know

Which is the best definition of “selling short?” *

1 point

Selling shares of a stock shortly after buying it

Selling shares of a stock before it has reached its peak

Selling shares of a stock at a loss

Selling borrowed shares of a stock

Which of the following best explains why many municipal bonds pay lower yields than other government bonds? *

1 point

Municipal bonds are lower risk

There is a greater demand for municipal bonds

Municipal bonds can be tax-free

Don’t know

Over the last 20 years in the US, the best average returns have been generated by: *

1 point

Stocks

Bonds

CDs

Money market accounts

Precious metals

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