Question

1. Financial advisors typically recommend that equity investors:

Group of answer choices

Trade frequently to make more money.

Only buy stocks with P/E ratios greater than 10.

Lock in short term gains for the tax advantage.

Buy and hold good quality stocks for long term gains.

2. Dividends on stocks:

Group of answer choices

Are guaranteed by law.

Can increase an investor's total return.

Cannot be reinvested into the company's stock.

All of the above.

3. A 401-K plan:

Group of answer choices

Can only be set up by your employer.

Does not require a matching contribution by your employer.

Typically requires the employee to choose from a limited number of options determined by their employer.

All of the above.

Answer 1

1. Answer: Buy and hold good quality stocks for long term gains.

A financial advisor will always recommend to hold good quality stocks as they would result in higher amount of gains in long run. Their market values will increase over time as the companies will grow.

2. Answer: Can increase an investor's total return.

An investor's return is the sum of price appreciation and dividend received from the stocks. Hence dividends on stocks can increase an investor's total return.

3. Answer: All of the above.

A 401k plan cannot be set up by an employee, only an employer can do so. IRS does not require a matching contribution by the employer. Since a 401k plan is set up by the employer, the employee has to choose from the limited number of options as determined by their employer.