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What do you really know about money?

Take this quiz on the fundamentals of money management and personal investing to find out.

Money, money, money. Everyone loves to talk about it, find new ways to make more of it, and spend it. But how many of us really know the ins and outs of how to effectively save and invest money? This quiz was designed by the editors at BLACK ENTERPRISE to test your financial I.Q. Many of the questions were developed from personal finance and money management articles featured in recent issues of BE. The answers follow the questions.

QUESTIONS

1. What is a mutual fund? a. An investment portfolio managed by a group of friends or associates b. A pool of money used to fund charitable causes c. An investment portfolio managed by a professional investment company

2. Corporate stocks and corporate bonds are one and the same. a. True b. False

3. Your net worth is a. the difference between your assets and your liabilities b. all your worldly goods c. your entire stock portfolio

4. Your account balance and available balance are always the same amount. a. True b. False

5. If your bank interest is compounded annually and you deposit $100 in your account at 10%, how much would you have at the end of two years? a. $110 b. $101 c. $121

6. Which savings/investment instrument is not federally insured? a. Passbook savings account b. NOW checking account c. Mutual fund

7. What is the minimum amount you can purchase a Treasury bill for? a. $500 b. $3,000 c. $10,000

8. The 401(k) plan is a. an employee contribution pension plan b. a credit union c. an insurance plan

9. The FDIC will insure your savings in accounts under one name up to what amount? a. $100,000 b. $10,000 c. $50,000

10. Which type of mutual fund charges an initial sales commission? a. Load fund b. No-load fund

11. An option is a contract to buy or sell shares of stock at a set price within a specific period of time. a. 200 b. 50 c. 100

12. During a bull market the price of common stock generally rises over an extended period of time. a. True b. False

13. One warning sign that you are overextended in terms of debt is that you are spending more than of your net take-home pay on debt servicing. a. 10% b. 15% c. 20%

14. Your property is underinsured if your insurance is less than of the total replacement value. a. 80% b. 90% c. 75%

15. Is the tax on the interest earned on zero-coupon bonds always deferred? a. Yes b. No

16. In terms of tax savings, is it better to pay points on your mortgage at the time of sale or prorate them over the life of the loan? a. Pay up front b. Prorate payment over the life of the loan

17. How does the interest rate on a CD compare with that of a passbook savings account? a. Higher b. Lower c. The same

18. Disposable income is personal income a. after all taxes b. after all fixed expenses c. after all taxes and fixed expenses

19. Which type of health insurance covers hospital and ancillary costs? a. Blue Cross b. Blue Shield

20. Which of these two stocks offers shareholders voting privileges at all stockholders meetings? a. Common stock b. Preferred stock

21. The Dow Jones Industrial Average is the most commonly used index to judge the performance of the stock market based on prices of shares traded on the a. American Stock Exchange b. Chicago Board Options Exchange c. New York Stock Exchange

22. Which of the following savings plans are designed to protect your money from heavy taxation until withdrawal? a. Uniform Gifts to Minors Account b. IRAs c. Both of the above

23. Does term life insurance offer a savings plan? a. Yes b. No

24. The terms "credit card" and "charge card" mean virtually the same thing. a. True b. False

25. Are handwritten and signed wills valid in all states? a. Yes b. No

ANSWERS

1. c. A mutual fund is a portfolio of investments managed by a professional investment company. An investment club is usually a group of friends or associates who manage an investment portfolio.

2. b. False. Corporate stocks are shares of ownership in a company. Corporate bonds are a form of corporate IOUs. Bondholders have no corporate ownership voting rights.

3. a. Your net worth is the difference between your assets and your liabilities.

4. b. False. Your account balance is the amount of money on deposit in your account. Your available balance reflects all deposits (checks) that have cleared.

5. c. $121. At the end of one year you would have $110. A 10% interest rate compounded annually on $110 is $121.

6. c. Mutual funds are not federally insured. However, these funds historically have been regarded as relatively safe investments. Nonetheless, if you are concerned with safety, you might do well to invest only in those funds that invest in Treasury securities (but pay somewhat less than the others).

7. c. $10,000

8. a. The 401(k) plan, or Flexible Compensation Plan, is an employee contribution pension plan.

9. a. The FDIC (Federal Deposit Insurance Corp.) insures all accounts in the same name in one member financial institution for up to $100,000. Joint accounts are separately insured for up to $100,000 per person. Funds in retirement accounts are also insured separately. Be sure that your total savings and checking accounts, including Treasury bill (T-bills) and certificates of deposit (CDs), do not total more than $100,000 in any one bank. Different branches of the same bank are not considered separate banks.

10. a. Load funds require that an initial sales commission, from 1% to 8.5% of your investment, be paid to the fund. However, although no-load funds charge nothing up front, some may impose a fee when you redeem your shares. Other funds disguise their sales commissions as annual fees of 1% or more. Most mutual funds also charge annual fees of about 1%.

11. c. 100

12. a. True. A bear market (the opposite of a bull market) is a declining market where stock prices drop over a prolonged period of time.

13. c. 20%

14. a. A property must be insured for at least 80% of its replacement-cost value to qualify for the full value of any partial loss. Therefore, insurance experts advise all property owners to continually upgrade their insurance to adequately cover new purchases and improvements.

15. b. No. Zero-coupon bonds are sold at deep discount (much less than face value at maturity.) No interest payments are made to holders. However, the annual accrued interest is subject to taxes unless it is specifically placed in a tax-deferred account such as a Clifford Trust.

16. a. When you pay points on your mortgage at the time of sale, the impact, in terms of tax savings, is greater than prorating the points over the life of the loan.

17. a. The rates are slightly higher--depending on where you buy the CD.

18. a. After all taxes

19. a. Blue Cross

20. a. Common stock. Preferred stockholders usually have no right to vote on corporate affairs unless the dividends on preferred stock are in default.

21. c. New York Stock Exchange.

22. c. Both of the above.

23. b. No. Term life insurance provides straightforward protection. The advantage is that an enormous amount of coverage is purchased for a relatively small fee.

24. b. False. A charge card is good only for purchasing products at the company or retail store from which it is issued. A credit card can be used in a variety of outlets. Credit cards fall into one of three categories: gasoline cards; travel and entertainment cards (Diners Club, American Express); and bank cards (Visa and MasterCard).

25. No. Each state has its own rules for a valid will.
COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Black Enterprise
Date:Jun 1, 1993
Words:1339
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