Are You a Savvy Investor?
An informed investor should have a good sense of what's happening in the markets. While you certainly don't need to be up on every detail, doing well on this test should confirm your acumen and reassure you that you can invest with confidence. Unfortunately, of course, even that won't guarantee you'll make any money in the market in 1998.
1. The Asian financial crisis has put the currencies of many local countries in the news. Match the countries listed below with their currencies.
a) Thailand 1. Dollar
b) Malaysia 2. Rupiah
c) South Korea 3. Won
d) Indonesia 4. Baht
e) Hong Kong 5. Ringgit
f) Japan 6. Yen
2. Sanford Weill is CEO of the company with the best-performing stock in the Dow Jones industrial average last year. What is it? George Fisher heads the company with the worst-performing stock. What is it?
3. Congress adjusted capital gains tax rates in 1997. The lowest rate investors can pay on a capital gain on a stock is now:
4. Which, if any, of these statements about federal capital gains taxes are false?
a) For assets sold before being held 12 months, the tax on any capital gain is the same as your ordinary federal income tax rate, up to 39.6%.
b) For assets sold after being held 12 to 18 months, the top gains tax is 28%.
c) For assets sold after being held more than 18 months, the top tax rate is 20%.
d) The 20% rate also applies to assets held at least 12 months and sold between May 7 and July 28, 1997. Assets sold before May 7 are taxed according to the old law.
e) If a small capital gain is your only income for the year, it may fall under your standard deduction and no tax at all will be due.
5. Intel, Microsoft, Cisco Systems and Hewlett-Packard are well-known technology companies. Whose stock did the best in 1997? Whose did the worst?
6. What was the total return (interest plus capital gains) on a 30-year Treasury bond bought on Jan. 1 and sold on Dec. 31?
7. The stock market suffered two "corrections" last year. The second came late in the year and included the 7% fall on Oct. 27. Within two days on each end, when did the first correction begin and end? Extra credit: What was the Dow loss?
8. Rank the following S&P stock indexes by their 1997 performance: airlines, banks, oil and high tech.
9. In September, the media reported that famed investor Warren Buffett was buying this security. (Hint: At the time, some analysts questioned his decision, but it's proven to be very profitable.)
10. Within 2 percentage points, what percentage of U.S. diversified equity mutual funds outperformed the S&P 500 in 1997?
11. The chars below represent the performance of the major stock indexes of three countries. Which are they? Hong Kong's Hang Seng, Mexico's Bolsa, Brazil's Bovespa, South Korea's Composite, Germany's DAX, Britain's FTSE-100 or Italy's Milan MIB-30.
(please see newspaper for charts)
12. Which statement best describes the market outlook for 1998?
a) Earnings growth could suffer because of the Asian financial crisis, but interest rates and inflation are expected to remain low.
b) Earnings growth could be weak because of the Asian financial crisis, in part because inflation will rise even though interest rates will come down.
c) Earnings growth could be strong because falling commodity prices and wage levels should offset slack demand from Asia.
d) Earnings growth could be strong because Asia is expected to recover quickly.
13. The stock market fell 7.2% on Oct. 27 but rebounded the next day. In percentage terms, how much did it bounce back?
14. If you want to buy or sell a stock at a specific price, what type of order would you submit to your broker?
a) Market order
b) Limit order
c) Sell-short order
d) Stop-loss order
15. Which timing decision would have made you the most money in 1997?
a) Buying an S&P 500 index fund Jan. 2 and holding it the rest of the year.
b) Buying an S&P 500 index fund on April 30 and holding it the rest of the year.
c) Buying an S&P 500 index fund Jan. 2 and selling it Sept. 30.
d) Buying an S&P 500 index fund the morning of Oct. 28 and holding it the rest of the year.
16. Which type of stock fund did best in 1997?
a) Small-cap value
b) Small-cap growth
c) Large-cap value
d) Large-cap growth
17. Which of the following commodities was hitting multiyear highs during 1997 while the others were falling to lows?
b) Crude oil
1. a-4, b-5, c-3, d-2, e-1, f-6
2. Travelers Group was up 72%; Eastman Kodak was down 28%.
3. d, in the 15% tax bracket
4. They are all true.
5. Microsoft was best, up 56.4%; Intel was worst, up 7.3%.
7. It began March 11 and ended April 11. The Dow fell 9.8%.
8. Airlines (68.2%), banks (41.1%), tech (27.4%) and oil (19.5%)
9. Buffett was buying zero-coupon Treasury bonds.
10. 10% 11. A: Korea's Composite; B: Hong Kong's Hang Seng; C: Mexico's Bolsa. But if you guessed Germany, Italy or Britain for the third one, give yourself credit. Most European markets (and the U.S. market as well) had a pattern much like Mexico's market this year.
12. a 13. 4.7%