Question

Cathy received a gift of $2,000 to buy a new car when she graduates in a year. She decides to use this money to purchase stock in a new, alternative energy company. Is this a good investment decisions?

A.No, because she will need money a year from now. Generally, stocks are long term investments. It is very unlikely that she will get a return on her investment in a year.


B.Yes, because alternative energy companies guarantee investors a minimum yearly profit.


C.Yes, because the FDIC insures this type of investment.


D.No, she should have invested in technology instead.

Answer 1

a. No, because she will need money a year from now. Generally, stocks are long term investments. It is very unlikely that she will get a return on her investment in a year.

Explanation:

Stocks are a riskier investment in comparison to bonds, and may pay higher interest rates, but still require the investment to "sit" for a long period of time. Like a 3 month (APY of about .50%), 6 month (APY of about .30%), 8 month (APY of about .10%), etc. bond, stocks will not grow considerably in a short amount of time.