A Financial Literacy Quiz for your College Senior

AI's response in regular print | Beverly Hills, CFP®, Joe O'Boyle's in italics

“A Financial Literacy Quiz for your College Senior.”

A college senior may have an understanding of financial concepts, including investments, budgeting, financial statements, and economics.

1. What is the primary purpose of diversification in an investment portfolio?
   A) To increase complexity
   B) To ensure a high return on investment
   C) To reduce risk
   D) To focus on one industry
   

2. What does the term "opportunity cost" refer to?
   A) The cost of starting a new business
   B) The cost of products on sale
   C) The cost of maintaining an opportunity
   D) The value of the next best alternative when making a decision
   

3. Which financial statement shows a company’s revenues and expenses?
   A) Balance Sheet
   B) Income Statement
   C) Statement of Cash Flows
   D) Statement of Retained Earnings
   

4. What is the meaning of the term "amortization"?
   A) The gradual reduction of a debt over time
   B) The increase in the value of an asset
   C) The process of buying stocks
   D) The payment of dividends
   

5. What does the Price-to-Earnings (P/E) ratio measure?
   A) A company's debt level
   B) The value of a company's assets
   C) The relationship between a company's stock price and its earnings per share
   D) The company's sales revenue
   

6. What is a 401(k) plan?
   A) A type of life insurance
   B) A type of educational loan
   C) A retirement savings plan offered by employers
   D) A type of mortgage
   

7. What does inflation refer to?
   A) An increase in stock market prices
   B) A decrease in the value of money
   C) A general increase in prices and fall in the purchasing value of money
   D) The process of inflating a balloon
   

8. Which type of risk cannot be eliminated through diversification?
   A) Specific risk
   B) Idiosyncratic risk
   C) Systematic risk
   D) Credit risk
   

9. What is the Net Present Value (NPV) used to analyze?
   A) The profitability of a potential investment
   B) The current stock price
   C) The net income of a company
   D) The total value of assets in a company
   

10. What does a credit score mainly represent?
    A) Your knowledge about credit
    B) Your savings account balance
    C) Your ability to repay debts
    D) Your annual income
    

11. Which type of insurance helps to cover medical expenses?
    A) Home insurance
    B) Auto insurance
    C) Health insurance
    D) Life insurance
    

12. What does ROI stand for in the context of investments?
    A) Return of Insurance
    B) Risk on Interest
    C) Return on Investment
    D) Rate of Inflation
    

13. What is the difference between a bond and a stock?
    A) There is no difference
    B) A bond is a loan to a company, and a stock is ownership in a company
    C) A bond is ownership in a company, and a stock is a loan to a company
    D) A bond can only be bought by banks, and a stock can only be bought by individuals
    

14. What is compound interest?
    A) Interest calculated on the initial principal and also on the accumulated interest from previous periods
    B) Interest that is only paid once
    C) Interest on a compound made in chemistry class
    D) Interest paid only on the initial principal
    

15. What does fiscal policy include?
    A) Adjusting interest rates
    B) Setting rules for commercial banks
    C) Government decisions about taxes and spending
    D) Regulations on stock trading
    

16. Which of the following would be considered a liquid asset?
    A) Real estate
    B) A car
    C) A piece of art
    D) A savings account
    

17. What is the time value of money (TVM)?
    A) The idea that money loses value over time
    B) The concept that money available now is worth more than the same amount in the future due to its potential earning capacity
    C) The time it takes to count money
    D) The historical changes in money value
    

18. What does a company's market capitalization represent?
    A) The total value of the company's assets
    B) The company's annual revenue
    C) The total market value of the company's outstanding shares of stock
    D) The company's dividend payments
    

19. What is the primary goal of a publicly-traded company?
    A) Increasing government regulations
    B) Maximizing shareholder value
    C) Minimizing employee benefits
    D) Avoiding taxes
    

20. What is the Federal Reserve primarily responsible for?
    A) Setting federal tax rates
    B) Monitoring the stock market
    C) Regulating the money supply and maintaining economic stability
    D) Ensuring corporate compliance with laws

Answers: 1-C, 2-D, 3-B, 4-A, 5-C, 6-C, 7-C, 8-C, 9-A, 10-C, 11-C, 12-C, 13-B, 14-A, 15-C, 16-D, 17-B, 18-C, 19-B, 20-C.

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Joe O'Boyle is the founder and principal of O'Boyle Wealth Management, a full service financial planning and investment management firm, located in Beverly Hills, California. Joe O’Boyle was named to InvestmentNews 40 under 40 class of 2016, and has a catalog of financial planning and investing articles on Money.com & U.S. News. Disclosure information.