Remember: An index fund holds a little of many things, so no single one decides the result. It spreads out the risk, and it cannot promise a gain.
Read and answer
Read the story first, then answer.
Ana's basket of gardensAna had one hundred pretend coins, and ten gardens grew in the valley below. Which would win? Ana asked Gran, who smiled and said, "Nobody can know that, and last year's winner may not win next year." If Ana planted all one hundred in one garden, it might leap to 140 or shrink to 50. The basket keeper had an idea: a basket with a little of every garden. Ten coins went into each garden, so Ana's hundred was spread across all ten. The basket followed a list of gardens. That list is called an index, so a basket that follows the list, with no guessing, is an index fund. A year passed. Four gardens did well, so each ten became fourteen. Four did a little less well, and each ten became eleven. Two shrank, and each ten became five. Four fourteens make 56, four elevens make 44, and two fives make 10, so the basket held 110. But a basket is not magic: in a hard year, most gardens fall together.
1
Look at the ten gardens. Ana puts 10 coins in each one. She plants coins in all.
2
What does Gran say about picking the winning garden?
Always pick last year's winnerPick the one that looks bestNobody can know that, and last year's winner may not win next year
3
What is an index?
A list of gardens a basket followsA guess about the winnerThe biggest garden
4
Four gardens end at 14 coins each. That is 4 × 14 = coins.
5
Four gardens end at 11 coins each, so they hold coins.
6
Add it up: 56 + 44 + 10. How many coins does the basket hold?
90140110
7
In the basket, one garden's bad year is softened by the other gardens' good years.
TrueFalse
Order, match and fix
8
Number the story.
Ana wants to pick the winning garden
A year passes and the basket holds 110
The basket keeper puts ten coins in each garden
Gran says nobody can know
9
Join each one to what it means.
1index
2index fund
3spread out
4one garden
Aa basket that follows the list, with no guessing
Bholds all the risk in one place
Ca little in each of many gardens
Da list of gardens
10
Circle each way of planting that is spread out.
Ten coins in each of ten gardensAll one hundred in FernA fund that follows a list of many gardensLast year's best garden onlyA little in each of six gardens
11
Ana says: a basket of many gardens can never end with fewer coins. Is she right?
YesNo
12
Stretch: in a hard year, eight gardens fall to 8 coins each and two rise to 12 each. 8 × 8 = 64 and 2 × 12 = 24, so the basket holds coins.
13
In that hard year the basket holds 88. Which sentence is true?
A basket can never fallA basket can fall, but it falls less than one bad garden mightA basket always wins
14
Why does a basket of many gardens make one bad garden hurt less?
15
Draw a basket holding a little of ten different gardens.
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Answer key · Set A
The simple way: index funds
1100 10 gardens of 10 coins each is 100 coins.
2Nobody can know that, and last year's winner may not win next year Nobody can know the winner ahead of time.
3A list of gardens a basket follows The basket follows a list of gardens, and that list is called an index.
456 4 × 14 = 56.
544 4 × 11 = 44.
6110 56 + 44 = 100, and 100 + 10 = 110.
7True The basket ended at eleven for every ten coins, in the middle.
81, 4, 3, 2 Ana wished to pick a winner, Gran said nobody can know, the keeper made the basket, and then a year passed.
91-D, 2-A, 3-C, 4-B A fund follows the list, and spreading out puts a little in each garden.
10Ten coins in each of ten gardens, A fund that follows a list of many gardens, A little in each of six gardens Many gardens is spread out. One garden, even last year's best, holds all the risk in one place.
11No In a hard year most gardens fall together, and the basket can fall too.
1288 64 + 24 = 88, which is less than the 100 planted.
13A basket can fall, but it falls less than one bad garden might A basket cannot promise a gain, because it only spreads out the risk.
14Your own words: a grown-up reads it.
Mark each answer, count the right ones and write the score on the sheet.