A Financial Literacy Quiz on Stock Investing

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

“A Financial Literacy Quiz on Stock Investing.”

Stock investing can feel intimidating to investors with potentially confusing terms like market capitalization, price-to-earnings ratios, dividends, bull market, bear market etc. This financial literacy quiz tests your knowledge on some stock investing basics.

1. What is the difference between a stock and a bond?
   A) Stocks represent ownership in a company, while bonds are loans typically made to either a company or government
   B) Stocks are loans made to a company, while bonds represent ownership in a company
   C) There is no difference, the terms are interchangeable
   D) Stocks are a type of currency, while bonds are a type of investment
   

2. What is a stock’s market capitalization?
   A) The number of employees in a company
   B) The number of outstanding shares multiplied by the current share price
   C) The total value of a company's assets
   D) The total dividends paid out by a company
   

3. What does a stock’s P/E (Price/Earnings) ratio signify?
   A) A company's market value per share divided by its earnings per share
   B) A company's earnings per share divided by its market value per share
   C) The percentage of earnings a company keeps after paying dividends
   D) The rate at which a company's earnings are growing
   

4. What is intrinsic value in terms of stock market investing?
   A) The value of a company’s intellectual property
   B) The value of a company's physical assets
   C) The perceived true value of a company or stock, as opposed to its current market price
   D) The total value of a company's outstanding shares
   

5. What has been the average long-term annual return for the S&P 500 stock index?
   A) 1-2%
   B. 3-4%
   C) 5-6%
   D) 7-10%
   

6. What is a bull market?
   A) A market with declining stock prices
   B) A market with rapidly fluctuating stock prices
   C) A market with steadily rising stock prices
   D) A market where only animal stocks are traded
   

7. What is a bear market?
   A) A market with declining stock prices
   B) A market with steadily rising stock prices
   C)A market with rapidly fluctuating stock prices
   D. A market where only animal stocks are traded
   

8. On average, how often has the S&P 500 stock index experienced a bear market?
   A) Every 1-2 years
   B) Every 3-4 years
   C) Every 5-6 years
   D) Every 7-10 years
   

9. Historically, is time in the stock market more important than timing the stock market?
   A) Yes, because long-term investing typically yields better returns
   B) No, because short-term trading is more profitable
   C) It depends if you like to day-trade
   D) All three are equally important
   

10. Are bull markets typically longer and stronger than bear markets?
    A) Yes, bull markets usually last longer and have higher returns
    B) No, bear markets usually last longer and are more significant
    C) The length and strength are usually about the same
    D) It depends on if you like bulls more than bears or vice versa
    

11. How does diversification help in investing?
    A) It helps to maximize profits
    B) It reduces the risk by spreading investments across different types of assets
    C) It helps to predict market trends
    D) It helps in buying stocks at a lower price
    

12. What is an IPO?
    A) An Initial Public Offering, where a company's shares are typically sold to institutional investors to raise money
    B. An Internal Purchase Order, which relates to a company's internal finances
    C. A type of insurance policy
    D. An index of public company earnings
    

13. Which of these statements about dividends is true?
    A) All companies are required to pay dividends
    B) Only non-profit organizations pay dividends
    C) Dividends are a share of profits distributed to shareholders
    D) Dividends are paid exclusively to the company's board of directors
    

14. What is a stock index?
    A) A list of all the companies in the stock and bond market
    B) A measure of the value of a basket of equities or a section of the stock market
    C. A document that outlines a company's financial performance
    D A tool for predicting future stock prices
    

15. What is a mutual fund?
    A) A pool of funds collected from many investors for the purpose of investing in securities such as stocks
    B) A type of insurance policy
    C) A tax levied on capital gains from the sale of securities
    D A loan provided by a group of investors
    

16. What is a blue-chip stock?
    A) A stock from a well-established and financially sound company with a history of reliable performance
    B) A stock that is new to the market and has high growth potential
    C) A stock that does not pay dividends
    D) A stock that is considered to be a poor investment
    

17. What is an ETF?
    A) An Exchange-Traded Fund, similar to a mutual fund but trades like a stock on an exchange
    B) An estimate of a company's future earnings
    C) A method of tracking the performance of a specific market index
    D) A type of private investment fund used to buy an exchange
    

18. Why are stocks also referred to as "equities"?
    A) Because "equity" refers to the dividend a stock pays
    B) Because stocks are houses
    C) Because "equity" is a term used to describe high-risk investments
    D) Because owning stock represents a degree of ownership, or equity, in a company
    

19. What does it mean when a stock is said to be 'volatile'?
    A) It pays high dividends
    B) Its price fluctuates widely in a short period
    C) It is a very safe investment
    D It is new to the stock market
    

20. What is a limit order in stock trading?
    A) An order to buy or sell a stock at a specific price or better
    B. An order to buy or sell a stock as soon as possible at the current market price
    C) A legal restriction on how much of a particular stock one can buy
    D) A rule that limits the amount of money one can invest in the stock market

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

    
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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.