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