Your parents give you $4,000 as a graduation gift and you decide to invest the money in the stock market If you are risk averse, should you purchase some stock in a few different companies through a website with low transaction fees or put the entire $4,000 into a mutual fund (A) You should put the money into a mutual fund This reduces your risk by allowing you to acquire fractions of shares in the large number of companies included in the fund, enabling you to spread your risk across a larger number of companies (B) You would only be able to invest in mutual funds that have very few companies in their pool Mutual funds require that every investor purchase at least one full share in each company represented in the fund, so you should purchase shares independently (C) You should purchase some stock independently in a few different companies This will increase the riskiness of the investment, adding to the excitement (D) You should purchase some stock independently in a few different companies This will reduce your risk compared with a mutual fund, as you will only be exposed to potential problems in a small number of companies

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Posted on Sep 20, 2024

Your parents give you $4,000 as a graduation gift and you decide to invest the money in the stock market. If you are risk averse,

Your parents give you $4,000 as a graduation gift and you decide to invest the money in the stock market. If you are risk averse, should you purchase some stock in a few different companies through a website with low transaction fees or put the entire $4,000 into a mutual fund?

(A) You should put the money into a mutual fund. This reduces your risk by allowing you to acquire fractions of shares in the large number of companies included in the fund, enabling you to spread your risk across a larger number of companies.
(B) You would only be able to invest in mutual funds that have very few companies in their pool. Mutual funds require that every investor purchase at least one full share in each company represented in the fund, so you should purchase shares independently.
(C) You should purchase some stock independently in a few different companies. This will increase the riskiness of the investment, adding to the excitement.
(D) You should purchase some stock independently in a few different companies. This will reduce your risk compared with a mutual fund, as you will only be exposed to potential problems in a small number of companies.