Question



Survey

Your gender:

( Male

( Female

Your undergraduate/graduate major :

( Business-related (finance, econ, acc'ting, etc)

( Math-related (engineering, science, stats, etc)

( Liberal arts (the rest)

Your investment experience:

( Significant

( Some

( None

Your experience with spreadsheets like EXCEL …

( Accomplished

( Moderate

( Some

( None

Questions on investing (choose best answer):

1. If you buy a company’s stock …

( the company will return your original investment, with interest

( you are liable for the company’s debts

( you own a part of the company

( you have lent money to the company

( Don’t know

2. If you buy a company’s bond …

( you can vote on shareholder resolutions

( you are liable for the company’s debts

( you own part of the company

( you have lent money to the company

( Don’t know

3. Which type of bond is the safest?

( Municipal bond

( Corporate bond

( US Treasury bond

( Don’t know

4. Which of the following best defines a “junk bond”?

( A bond rated below “investment grade” by rating agencies

( A bond that has declined dramatically in value

( A bond that has defaulted

( A bond that is not regulated

( Don’t know

5. In general, if interest rates go down, bond prices …

( go down

( go up

( are not affected

( Don’t know

6. A “no load” mutual fund is one that …

( carries no fees

( carries no up-front sales charges

( does not contain high-risk securities

( has no limits on when it can be bought or sold

( Don’t know

7. In general, higher-risk investments tend to provide higher returns over time than lower-risk investments.

( True

( False

( Don’t know

8. Over the last 20 years in the United States, the best average returns have been generated by

( precious metals

( money market accounts

( bank CDs

( bonds

( stocks

( Don’t know

9. Based on past performance, the average return you expect from a broadly-diversified US stock mutual fund over the long run is …

( 5 percent

( 10 percent

( 15 percent

( 20 percent

( 25 percent

( Don’t know

10. Which organizations insure investors against losses in the stock market?

( Securities and Exchange Commission (SEC)

( Federal Deposit Insurance Corporation (FDIC)

( Securities Investor Protection Corporation (SIPC)

( National Association of Securities Dealers (NASD)

( None of these

( Don’t know

Questions on mutual funds (choose best answer):

11. A mutual fund’s performance is best measured by:

( Income return.

( Total return.

( Yield.

( Capital gains distributions.

( Don’t know.

12. If a mutual fund charges an expense ratio of 1% in 2008:

( You will pay a one-time fee amounting to 1% of the number of shares held in the account.

( Your fund investment’s returns will be reduced by 1% in 2008 and each year thereafter.

( Your fund investment is reduced by 1% at the time you buy shares.

( You will pay a sales charge of 1% to a broker at the time you buy shares.

( Don’t know.

13. Mutual funds report an expense ratio that includes (check all that apply):

( Management (advisory) fees.

( Trading costs.

( Sales loads.

( Don’t know.

14. Money market funds are always priced at $1/share and never fall in value:

( True

( False.

( Don’t know.

15. The goal of an index mutual fund is to:

( Track the investment return of a specified stock or bond benchmark.

( Beat the investment return of a specified stock or bond benchmark.

( Buy only stocks in the S&P 500 index.

( Invest in the best-performing sectors of the stock market.

( Don’t know.

16. Dollar cost averaging is:

( A strategy that entails buying low and selling high.

( A way to sell fund shares to minimize capital gains.

( An approach in which you invest the same amount of money in a fund at regular intervals.

( Don’t know.

17. From 1926 to 2001, the average total return per year for the U.S. stock market was:

( 4% per year.

( 11% per year.

( 22% per year.

( 33% per year.

( Don’t know.

18. If your mutual fund holds only U.S. stocks, you can reduce your overall risk by changing to a global stock fund.

( True.

( False.

( Don’t know.

19. Which type of investment has generally offered the best protection against inflation over long periods of time?

( Bank savings accounts.

( Money market funds

( Stocks.

( Bonds.

( Don’t know.

20. Generally, a portfolio that has 80% of its assets invested in stocks would be best suited for:

( An 18-year-old using the assets to pay for college expenses over the next 4 years.

( A 35-year-old investing for retirement.

( A 75-year-old investing for income and capital preservation.

( Don’t know.

Questions on finance terminology and principles (choose best answer):

21. Subprime mortgage loans …

( have an interest rate set below the "prime interest" rate

( are made to customers with a weak credit history

( cannot be sold to institutional investors

( Don't know

22. An ARM (adjustable rate mortgage) carries an interest rate that …

( varies with prevailing interest rates, often pegged to an index

( can fall, but cannot rise

( rises after the first year

( Don’t know

23. A CDO (or collateralized debt obligation) ...

( is guaranteed by the federal government

( reflects a portfolio of fixed-income assets, such as mortgage loans

( has less risk than the underlying collateral

( Don't know

24. A CDS (or credit default swap) is a contract in which …

( one party (for a premium) agrees to pay another party if a financial instrument defaults

( a regulated insurance company insures against financial defaults

( the party holding the CDS can choose not to mark its value to market

( Don't know

25. The Efficient Capital Market Hypothesis posits that capital markets …

( create opportunities for sophisticated investors to exploit unsophisticated investors

( reflect all publicly-available information about market-traded investments

( provide transparency in the buying and selling of market-traded investments

( Don’t know

26. The Theory of the Firm explains …

( why corporations seek to maximize shareholder wealth

( why equity shareholders vote, but debt creditors do not

( why some enterprises have employees and others contract for freelance labor

( Don’t know

27. The modern Portfolio Theory …

( measures portfolio risk according to the riskiest investment in the portfolio

( posits that low-risk assets negate the risk of high-risk assets in a portfolio

( suggests that rational investors will diversify their portfolio to lower risk

( Don’t know

28. Agency Costs …

( cannot arise if principals and agents have equal access to information

( arise when owner interests diverge from management interests

( are eliminated in the corporation through voting and liquidity rights

( Don’t know

29. Transparency in capital markets …

( means that all market prices are known

( means that price-related information is available to market participants

( exists because of government regulation

( Don’t know

30. Externalities are …

( costs that the government imposes on firms, without compensating the firms

( costs that one firm imposes on another as a form of competition

( costs that firms impose on society, without the firms bearing the social costs

( Don’t know

Bonus. In the “Subprime primer,” the pension fund that gets stuck holding non-paying CDOs is from …

( Arizona

( Cayman Islands

( Norway

□ Seattle

□ Oz

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