Pre-test and post-test: answer key
The same 12 questions are used before and after the game, one point each (12 total). To measure growth, subtract the pre-test score from the post-test score, then compare by question to see what to reteach. The ownership, diversification, index fund, and risk ideas line up with SEC investor education materials.
1. Ownership
When you purchase a company's stock, what do you own?
- A. A loan that the company must repay
- B. A share of ownership in the company (correct)
- C. A savings account with guaranteed interest
- D. A share of the company's debt
Ownership. A stock is a share of ownership in a company.
2. Stocks vs bonds
How is a bond different from a stock?
- A. A bond always earns more than a stock
- B. A bond gives you ownership in a company
- C. A bond cannot lose value
- D. A bond represents money loaned to a company or government (correct)
Lending. Bond investors lend money to a company or government. Stock investors buy ownership.
3. Bull and bear markets
Which statement correctly describes bull and bear markets?
- A. Bull markets generally rise; bear markets generally fall (correct)
- B. Bull markets generally fall; bear markets generally rise
- C. Both terms describe rising markets
- D. Both terms describe markets that are closed
Market direction. Bull markets generally rise. Bear markets generally fall.
4. Capital gain
You buy 10 shares at $20 each and sell all 10 at $25 each. Ignoring fees and taxes, what is your capital gain?
- A. $5
- B. $25
- C. $50 (correct)
- D. $250
$50. ($25 minus $20) times 10 shares equals a $50 capital gain.
5. Dividends
What is a dividend?
- A. A fee charged when you buy stock
- B. A payment a company makes to its shareholders (correct)
- C. The amount a stock's price increases
- D. Interest an investor pays on borrowed money
Shareholder payment. Some companies pay dividends. Payments are not guaranteed.
6. Diversification
Which portfolio best demonstrates diversification within the stock market?
- A. Stocks from several companies across different industries (correct)
- B. All your money in one successful company
- C. Stocks from several companies in the same industry only
- D. All your money in the company with the lowest share price
Diversification. Investing across companies and industries reduces concentration risk. It does not remove all losses.
7. Index funds
What is an index fund designed to do?
- A. Guarantee investors a profit every year
- B. Purchase only the highest-priced stock
- C. Keep its share price from falling
- D. Track the performance of a market index, such as the S&P 500 (correct)
Index tracking. An index fund aims to follow an index. It does not guarantee profits.
8. Volatility
A stock's price moves sharply up and down over a short period. What does this demonstrate?
- A. A dividend payment
- B. A guaranteed return
- C. High volatility (correct)
- D. Compound interest
Volatility. Large price swings mean high volatility.
9. Earnings and expectations
A company reports earnings far below what investors expected. Why might its stock price fall?
- A. Investors may lower their expectations for the company's future performance (correct)
- B. Companies must lower their stock prices whenever earnings fall
- C. Lower earnings automatically increase the number of shares
- D. The stock exchange requires investors to sell
Investor expectations. Disappointing earnings can lower demand for a company's stock.
10. Risk and return
Which statement about investment risk and return is most accurate?
- A. Taking more risk guarantees a larger profit
- B. Higher potential returns usually involve greater risk of loss (correct)
- C. Stocks in well-known companies cannot lose value
- D. An investment that performed well last year will perform well this year
Risk and return. Greater potential rewards usually come with greater risk. Nothing is guaranteed.
11. Compound growth
You invest $1,000 and earn 10% in the first year. You keep the earnings invested and earn another 10% in the second year. Assuming no fees or taxes, what is your balance after two years?
- A. $1,100
- B. $1,200
- C. $1,210 (correct)
- D. $1,220
$1,210. $1,000 times 1.10 times 1.10 equals $1,210. The second year earns growth on the first year's earnings.
12. Time horizon
A student needs $500 for a school trip in two months. Which choice best fits that goal?
- A. Invest it all in a stock promoted on social media
- B. Buy a stock that doubled last month
- C. Spread it across stocks because diversification prevents all losses
- D. Keep it in an insured savings account because the money is needed soon (correct)
Time horizon. Money needed soon should focus on safety and access, because stock prices can fall before the deadline.