Can You Ace This Simple Investing Quiz? Test Your Stock Market Knowledge.

If you enjoy taking quizzes, you might have stumbled upon an 11-question financial knowledge quiz from the folks at the Financial Industry Regulatory Authority (FINRA). It can be a good idea to take the quiz even if you're not a quiz aficionado to see how savvy you really are.

Here are some sample questions and possible answers.

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1. If you buy a company's stock...

Do you own a piece of the company, or have you lent money to the company, or will the company return your original investment to you with interest?

2. If you buy a company's bond...

Do you own a part of the company, or have you lent money to it, or are you now able to vote on shareholder resolutions?

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

Is that true or false?

4. 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?

5. Over the last 20 years in the U.S., the best average returns have been generated by:

Is the answer stocks or bonds or CDs or precious metals?

6. Past performance of an investment is a good indicator of future results.

True or false?

Here are the answers.

• Question 1: Buying a company's stock makes you a part-owner in the business. So as the company becomes more (or less) valuable over time, so do your shares. Shareholders also frequently have the right to vote on company matters.
• Question 2: Buying a company's bond means you're lending money to the company in exchange for interest payments and the return of your principal. This is how many companies raise funds. Bondholders don't own a part of the company.
• Question 3: It's true that higher-risk investments can deliver higher returns, and low-risk investments tend to offer low returns. The high potential returns are not guaranteed, though, while some low-risk investments such as government bonds are guaranteed by the U.S. government.
• Question 4: With the buying-stocks-on-margin question, know that you are borrowing money from your brokerage when you invest on margin. So if you invest $500 to buy $1,000 worth of stock, you've borrowed the other $500 -- and will be charged interest on it. If the investment falls in value by 50%, it will be worth $500, which is what you borrowed and will need to repay. So the stock fell by 50% but your investment fell by 100%, to zero.
• Question 5: Over long periods, stocks have outperformed just about every alternative, such as bonds, CDs, money market accounts, precious metals, and so on.
• Question 6: False. Past performance of an investment is not a good indicator of future results. An investment may simply have had an unusually good year or years, or it might be likely to fall in value.

If you didn't do very well on this quiz, take it as a wake-up call to read up a little more on investing. A good place to start is Fool.com and our "How to Invest" page.

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