Finance Test

Please calculate the value of a bond with a 10 year maturity, 8% coupon, $1,000 par value assuming current interest rates are 9%.

-935.82

What is the yield to maturity of a bond that was purchased for $1,050, has a 6% coupon, $1,000 par value and 5 years until maturity.

4.85

The taxable-equivalent yield on a Municipal Bond earning 4% is ______, assuming the investor's tax rate is 35%.

6.15

Assuming an 8% annual return, compounded monthly, a 30 year old would need to save _______ a month to raise $1,000,000 by age 70.

About $286

If an investor chooses to be "owed" his investment, he is more likely to prefer a ___________ over a __________.

Bond, Stock

___________ are debt investments.

Bonds

When using the Rule of 72, you _________ 72 by the __________ on the investment.

Divide, Annual interest rate

If a company decides to pay its shareholders a portion of the profit, this payment will likely be called a/an ___________.

Dividend

Investments offering ownership are also called __________ investments.

Equity

Stocks are commonly referred to as ___________ investments

Equity

A benefit of taking the time to learn tax law is that once you learn it, you don't have to worry about it changing.

False

A value fund seeks to buy stocks that are a very high price because that means the market thinks very highly of them and therefore they must be a good investment.

False

According to Edelman, stocks are not a reasonable hedge against inflation.

False

According to Edelman, the cost of raising a child through age 18 typically totals to be between $35,000 and $45,000.

False

According to the video on capitalism, the concept of capitalism arose out of the Industrial Revolution.

False

Compound interest is the process of bundling your investments in order to create a portfolio of various returns that can be added together every year.

False

Dollar cost averaging means the best way to buy stocks is to invest in the same fund every month, buying the same number of shares every month, regardless of the price.

False

In the United States, the history of income taxation can be traced back to Declaration of Independence.

False

It is impossible for the average investor to buy stocks unless she holds securities license.

False

Mutual funds never charge expenses and instead always keep a portion of the profit when the fund is liquidated.

False

Only a small percentage of REITs are traded on the New York Stock Exchange.

False

The current FDIC limit is $150,000.

False

When investing capital in a business, individuals always expect a return of cash on a regular basis.

False

Zero Coupon Bonds are worthless until the maturity date.

False

FDIC stands for __________________________.

Federal Deposit Insurance Corporation

Municipal bonds fall into what two broad categories?

General Obligation or Revenue

GNMA stands for _______________________.

Government National Mortgage Association

The acronym for remembering capitalization rate calculations when valuing real estate is _______.

IRV

Which of these was not an obstacle to building wealth, according to Edelman?

Income Level

Which of the following is not a benefit of owning stock according to Edelman?

Income from municipal stocks is free

According to Edelman, you need a financial plan to protect against:

Lawsuits, Illness, Injury

The owner of a lumber company notices that a large number of home building permits have been issued so he decides to prepare for an increase in sales by increasing his inventory. In this case, the number of home building permits serves as a _________ economic indicator.

Leading

The stock market is a ___________ economic indicator.

Leading

_____________ is a measurement how readily available cash is to the investor.

Liquidity

Income from the sale of stocks is generally taxed at a rate that is ___________ the top marginal rate.

Lower than

According to Edelman, which of the following is most suitable for cash reserves?

Money Market Account

According to Edelman, investment companies:

Offers diversification Offers affordability Allows consumers to invest in numerous other companies.

According to Edelman, a good way to create savings is to:

Pay yourself first

Financial experts generally agree that the most common reason people fail financially is:

Procrastination

According to Edelman, when analyzing mutual funds, net asset value refers to:

The value per share of a fund

A bond with a call date means that the issuer can redeem the bond prior to maturity.

True

According to the information presented by Edelman, stock market returns are much more volatile when viewed on a monthly basis as opposed to a longer term basis like 5 or 10 years.

True

Essentially, a bank Certificate of Deposit is a bond. (CD)

True

Immediate annuities pay out all payments in one lump sum immediately upon the request of the investor.

True

Municipal bonds are usually exempt from Federal taxes.

True

No one has ever demonstrated an ability to buy and sell stocks at the right times consistently over any meaningful length of time.

True

The Federal Income Tax system is essentially progressive, meaning the more you earn, the greater your income tax rate.

True

The Rule of 72 allows you to predict the number of years it will take to double your money.

True

The main difference between US Treasuries, Notes and Bonds is the duration of the investment.

True

When interest rates rise, bond prices fall.

True