In 2015, the FINRA Investor Education Foundation conducted the National Financial Capability Study and a follow-up study to investors who invest outside of retirement accounts.  Part of the survey included a 10 question multiple choice quiz.  Only 10% of the respondents were able to answer 80% right and only 1% answered all 10 questions correctly.  

 

1. In general, investments that are riskier tend to provide higher returns over time than investments with less risk.

a.  True

b.  False

 

2.  If you buy a company’s stock…

a.  You own part of the company

b.  You have lent money to the company

c.  You are liable for the company’s debts

d.  The company will return your original investment to you with interest

e.  Don’t know

 

3.  If you buy a company’s bond…

a.  You own a part of the company

b.  You have lent money to the company

c.  You are liable for the company’s debts

d.  You can vote on shareholder resolutions

e.  Don’t know

 

4.  Over the last 20 years in the U.S., the best average returns have been generated by:

a.  Stocks

b.  Bonds

c.  CDs

d.  Money market accounts

e.  Precious metals

f.  Don’t know

 

5.  If a company files for bankruptcy, which of the following securities is most at risk of becoming virtually worthless?

a.  The company’s preferred stock

b.  The company’s common stock

c.  The company’s bonds

d.  Don’t know

 

6.  Which of the following best explains why many municipal bonds pay lower yields than other government bonds?

a.  Municipal bonds are lower risk

b.  There is a greater demand for municipal bonds

c.  Municipal bonds can be tax-free

d.  Don’t know

 

7.  What has been the approximate average annual return of the S&P stock index over the past 20 years (not adjusted for inflation)?

a.  -10%

b.  -5%

c.  5%

d.  10%

e.  15%

f.  20%

g.  Don’t know

 

8.  You invest $500 to buy $1,000 worth of stock on margin.  The value of the stock drops by 50%.  You sell it.  Approximately how much of your original $500 investment are you left with in the end?

a.  $500

b.  $250

c.  $0

d.  Don’t know

 

9.  Which is the best definition of “selling short?”

a.  Selling shares of a stock shortly after buying it

b.  Selling share of a stock before it has reached its peak

c.  Selling share of a stock at a loss

d.  Selling borrowed shares of a stock

e.  Don’t know

 

10.  Which of the following best explains the distinction between nominal returns and real returns?

a.  Nominal returns are pre-tax returns; real returns are after-tax returns

b.  Nominal returns are what an investment is expected to earn; real returns are what an investment actually earns

c.  Nominal returns are not adjusted for inflation; real returns are adjusted for inflation

d.  Nominal returns are not adjusted for fees and expenses; real returns are adjusted for fees and expenses

e.  Don’t know

 

 

 

Answers

1 – a

2 – a

3 – b

4 – a

5 – b

6 – c

7 – d

8 – c

9 – d

10 – c