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Quizzes > Quizzes for Business > Finance

Employee Investment Knowledge Quiz Challenge

Measure Your Workplace Investment Skills and Insights

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art illustration representing Employee Investment Knowledge Quiz

Take the Employee Investment Knowledge Quiz to cement your understanding of workplace investment options and retirement strategies. Perfect for employees wanting to assess their grasp on stock plans and portfolio basics, this interactive quiz challenges you with real-world scenarios and multiple-choice questions. Educators and HR professionals can also leverage this resource to support training, freely modifying it in the quizzes editor for custom needs. Explore related assessments like the Basic Investment Knowledge Quiz or the Employee Knowledge Assessment Quiz for deeper insights. Joanna Weib invites you to test your skills and refine your investment acumen today.

Easy
Which of the following best describes a 401(k) plan?
Health savings account for medical expenses
Employee-owned stock option scheme
Employer-sponsored defined contribution retirement plan
Government-provided pension program
A 401(k) is an employer-sponsored retirement plan where employees contribute and receive defined contributions. Its funding depends on employee contributions, employer matches, and investment performance.
In an Employee Stock Purchase Plan (ESPP), employees typically purchase company stock at what standard maximum discount?
15%
5%
10%
25%
Many ESPPs allow employees to buy company shares at a discount, commonly capped at 15% of the fair market price. This discount provides an immediate potential gain.
What does RSU stand for in employee equity compensation?
Retirement Stock Usage
Restricted Stock Unit
Registered Share Utility
Realized Stock Unlock
RSU stands for Restricted Stock Unit, which is a grant of company shares that vests over time. Once vested, the employee owns the shares outright.
The employer's matching contribution in a 401(k) plan is considered which type of contribution?
Catch-up contribution
Matching contribution
Profit-sharing contribution
Elective deferral
An employer match is referred to as a matching contribution because it directly correlates to employee deferrals. Other contributions are defined by profit-sharing or catch-up rules.
A vesting schedule in a retirement plan determines:
When an employee gains non-forfeitable rights to employer contributions
The dividend payment schedule on plan assets
The annual limit on employee contributions
How interest rates on plan loans are set
Vesting schedules specify when employees fully own employer contributions without forfeiture. They do not set loan rates, contribution limits, or dividend schedules.
Medium
Which plan allows employees to acquire shares through payroll deductions and often includes a discount at purchase?
Employee Stock Purchase Plan (ESPP)
403(b) retirement plan
Employee Stock Option Plan (ESOP)
Health Savings Account
An ESPP uses payroll deduction to fund share purchases, frequently offering a purchase-price discount. ESOPs are ownership plans, not discount purchase programs.
If an employee contributes 6% of their salary to a 401(k) and the employer matches 50% of employee contributions up to 5% of salary, what percentage of salary does the employer contribute?
3%
6%
5%
2.5%
The employer contributes 50% of the first 5% of salary, which equals 2.5% total. Contributions above 5% receive no further match.
A portfolio composed of 80% equities and 20% bonds is generally considered to have what level of risk compared to a 60/40 split?
Higher risk
Lower risk
Equal risk
No risk
An 80/20 mix is more heavily weighted in equities, which normally have higher volatility than bonds. Thus it carries greater overall portfolio risk.
Which retirement plan feature allows tax-free growth and tax-free qualified withdrawals?
Employee Stock Option Plan
Traditional 401(k)
Roth 401(k)
Defined Benefit Plan
Roth 401(k) contributions are made after-tax, so both growth and qualified withdrawals are tax-free. Traditional 401(k) withdrawals are taxable.
In a non-qualified ESPP with a lookback provision and a 15% discount, if the offering price is $50 and the purchase date price is $60, what price does the employee pay?
$47.50
$51.00
$50.00
$42.50
The lookback uses the lower price ($50), discounted by 15%, yielding $50 Ã - 85% = $42.50. The ending price is irrelevant to the discount calculation.
After two years in a four-year cliff vesting schedule (100% vest at year 4), what percentage of employer contributions is vested?
100%
25%
50%
0%
Cliff vesting grants no ownership until the end of the period. Under a four-year cliff, nothing vests until year four, so at two years the vested percentage is zero.
Holding a large position in company stock introduces what specific type of risk to an employee's portfolio?
Liquidity risk
Concentration risk
Interest rate risk
Currency risk
Concentration risk occurs when too much of a portfolio is in one asset, such as an employer's stock. Diversification helps mitigate this risk.
To maximize employer matching in a 401(k), an employee should contribute at least:
50%
100%
1%
The full match threshold
By contributing at least up to the employer match threshold, employees ensure they receive all available matching funds. Contributing less forfeits part of the match.
Which ratio measures risk-adjusted return by comparing the portfolio's excess return to its volatility?
Debt-to-equity ratio
Sharpe ratio
Current ratio
Price-to-earnings ratio
The Sharpe ratio calculates the return above the risk-free rate divided by portfolio standard deviation. It is a standard measure of risk-adjusted performance.
In a defined benefit pension plan, benefits are:
Paid out as lump sums only
Determined by employee contributions only
Fully invested in equities
Predefined based on salary and service
Defined benefit plans guarantee a specific payout formula, usually tied to salary history and years of service, rather than depending solely on contributions.
Hard
In an ESPP with a lookback and a 15% discount, if the price at the offering start is $20 and at purchase is $30, what is the effective yield on the purchase?
Approximately 76.5%
Approximately 33.3%
Approximately 50%
Approximately 15%
The lookback applies the discount to the lower price of $20, so purchase price is $17. With a market price of $30, the gain is (30 - 17)/17 ≈ 76.5%.
Given a portfolio return of 8%, a risk-free rate of 2%, and a standard deviation of 10%, what is the Sharpe ratio?
0.2
1.0
0.6
0.8
Sharpe ratio = (Portfolio return - risk-free rate) / standard deviation = (8% - 2%)/10% = 6%/10% = 0.6.
Which action best helps maintain a target asset allocation over time in a retirement plan?
Selling bonds permanently after price rises
Increasing contributions only to equities
Periodic rebalancing
Ignoring market movements
Periodic rebalancing restores the portfolio to its target weights by selling overweighted assets and buying underweighted ones. This controls risk and maintains strategy.
Comparing a Roth 401(k) to a traditional 401(k), which is true regarding taxes?
Traditional withdrawals are tax-free
Traditional contributions are taxed after withdrawal
Roth contributions reduce current taxable income
Roth contributions are taxed now, withdrawals are tax-free
Roth 401(k) contributions are made with after-tax dollars, so qualified distributions in retirement are tax-free. Traditional contributions reduce current income and are taxed on withdrawal.
If an employee expects to be in a lower tax bracket in retirement than now, which retirement account type generally provides greater after-tax benefit?
Traditional 401(k)
ESPP
HSA
Roth 401(k)
When retirement tax rates are expected to be lower, deferring taxes via a traditional 401(k) often yields a greater after-tax benefit compared to paying taxes upfront in a Roth account.
0
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Learning Outcomes

  1. Identify fundamental employee investment vehicles and terms
  2. Analyze risk and return scenarios in workplace plans
  3. Evaluate benefits of different employee stock purchase options
  4. Apply strategies to optimize portfolio contributions effectively
  5. Demonstrate understanding of company-sponsored retirement plans
  6. Master techniques for assessing individual investment performance

Cheat Sheet

  1. Understanding ESPPs - Dive into Employee Stock Purchase Plans where you can snag company shares at a discount (often up to 15%) through easy payroll deductions. Learning the purchase windows, holding requirements, and tax rules ensures you maximize your gains without surprising tax bills. Employee Stock Purchase Plan
  2. Exploring ESOPs - Employee Stock Ownership Plans hand you company stock as a retirement boost, often with no upfront cost. These plans can supercharge your motivation and long-term savings, but understanding vesting schedules and distribution rules is key. Employee Stock Ownership Plan
  3. Mastering Risk vs. Return - Every investment carries a trade-off: higher potential returns usually come with higher risk. Pinpointing your personal risk tolerance and investment horizon helps you pick the right workplace plans and sleep well at night. Risk-Return Tradeoff
  4. Comparing Stock Purchase Options - ESPPs, ESOPs, and other offerings each have their own perks and quirks - think tax treatment, vesting rules, and potential stock growth. Weigh pros and cons to find the best mix for your portfolio and timeline. Employee Stock Purchase Plans
  5. Optimizing Portfolio Contributions - Smart diversification means spreading your savings across stocks, bonds, and cash so one market wobble won't topple your goals. Regular check-ins and adjustments keep your investments in sync with your dreams and risk comfort. Asset Allocation
  6. Leveraging 401(k) Plans - Company-sponsored retirement plans like 401(k)s often include employer matches, tax perks, and a buffet of investment choices. Max out contributions where you can and watch the power of compounding work its magic over decades. 401(k) Plans
  7. Evaluating Investment Performance - Tracking your returns against benchmarks helps you spot winners, troubleshoot laggards, and fine-tune your strategy. Set review dates, analyze fees, and celebrate when your picks outperform. How to Evaluate Your Investment Performance
  8. Learning Key Investment Terms - Jargon like diversification, asset allocation, and compounding can seem daunting, but each concept is a building block for savvy decision-making. Grasping these terms puts you in control of your financial future. Diversification
  9. Understanding Tax Implications - Pre-tax contributions to traditional 401(k)s lower your current taxable income, while Roth options let you enjoy tax-free withdrawals later. Knowing the differences helps you choose the best vehicle for today's savings and tomorrow's dreams. Roth Comparison Chart
  10. Crafting an Investment Policy Statement - An IPS is your personal roadmap, outlining goals, risk appetite, and strategies so you stay on track even when markets get bumpy. Treat it as a living document - update it as your life and objectives evolve. What Is an Investment Policy Statement?
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