Do you know what is a yellow sheet? Do you think "junk bonds" are securities issued by garbage collection agencies?
Find out your investment IQ by taking the following quiz. If you score 10 or more, consider yourself a wizard. Between 4 and 9, you are knowledgeable but may still be mired in the investment jungle. Three or less, and you had better read this personal finance guide from cover to cover.
Good luck. (Answers on page 17.)
1. U.S. savings bonds:
A. Are exempt from all federal and state taxes.
B. Always must pay interest of 7.5%.
C. Can be bought for as little as $25.
2. "Junk bonds" are:
A. Risky investments because they don't pay high yields.
B. Rated BB or lower by Moody's and Standard & Poor's.
C. Exclusively issued by Drexel Burnham Lambert.
3. A load, or sales commission, on a mutual fund:
A. Is generally charged on money market funds as well.
B. Provides an incentive for the portfolio manager.
C. Cannot exceed 8.5% of your investment.
4. Individual retirement accounts:
A. Are not available to investors with retirement plans.
B. Require no minimum annual investment.
C. Are good plans because earnings are never taxed.
5. What are the nicknames of the following:
A. Federal National Mortgage Assn.
B. Government National Mortgage Assn.
C. Student Loan Marketing Assn.
6. When you "go long," it means you are:
A. Selling any short-term investments.
B. Purchasing a security or commodity.
C. Buying bonds with maturities of at least 20 years.
7. American Eagle gold coins are:
A. Safe because they are backed by the U.S. Treasury.
B. Collector's items because only a few were minted.
C. Allowed to be held in individual retirement accounts.
8. Certificates of deposit:
A. Are available only through banks and thrifts.
B. Are insured up to $100,000 per person per institution.
C. Pay interest only when they mature.
9. Zero-coupon Treasury bonds are:
A. Initially sold at deep discounts from their face values.
B. Stable investments because they never change value.
C. Tax shelters because you don't pay tax on the interest.
10. A yellow sheet is:
A. What brokers get when they are hired.
B. A document that lists options contracts.
C. A document that lists over-the-counter bonds.
Below are the answers to the investment quiz on page 28. One point each, 12 points total.
1. C. 2. B. 3. C. 4. B.
5. A. Fannie Mae;
B. Ginnie Mae;
C. Sallie Mae
6. B. 7. C. 8. B.
9. A. 10. C.