Download Week 3 Quiz - Investments (7pts) – ANSWER KEY

Week 3 Quiz - Investments (7pts) – ANSWER KEY
1. If you had $1,000 to invest into the following funds, which one would have the
highest value (not including any fees) at the end of the second year?
Green Fund with Year 1 return of -9.5% and Year 2 return of +10%
Purple Fund with Year 1 return of +10% and Year 2 return of -9.5%
Yellow Fund with Year 1 return of +30% and a year 2 return of -25%
Orange Fund with Year 1 return of 0% & Year 2 return of 0%
2. If you had a fund with a Year 1 return of +30% and a year 2 return of -25%,
what is this fund's a) average annual return for the two years and b) actual return
for the two year period?
a) +2.5% b) +2.5%
a) +5% b) 0%
a) +5% b) +2.5%
a) +2.5% b) -2.5%
3. Which type of investment typically charges the investor the lowest fees?
Mutual fund - actively managed
Index fund - passively managed
Bond fund - actively managed
International funds
4. What is a dividend?
The new company entity that results from a company merger
Money a company regularly (typically quarterly) charges shareholders to help profits
The interest from a corporate bond that a company pays the bond-holder
Money a company regularly (typically quarterly) pays shareholders from its profits
5. Suppose you have been employed for about a year and a half and have been
offered a better job at a different employer. Assuming you have been taking
advantage of the matching 401k plan, what will happen to your 401k if you leave
your current job before you are fully vested?
You may lose some or all of your 401k match, but will get to keep your contributions
You will always get to keep the entire balance of your 401k
A judge will need to review the company charter to decide
You will lose your entire 401k
6. What would happen to the buying power of your investment after one year if your
rate of return was 8% and the rate of inflation was 3%?
The buying power would increase by 5%
The buying power would increase by 11%
The buying power would decrease by 1%
The buying power would increase by 8%
7. What is the intended purpose of a 401k account?
Save money for emergencies
Invest money for college
Invest money for retirement
Save money for vacation
Quiz Details
Question
Answer Choices
Correct Answer Answer Explanation
Point
Value
Orange Fund with Year 1
return of 0% & Year 2 return of
1. If you had $1,000 to
0%, Purple Fund with Year 1
Orange Fund
invest into the following
return of +10% and Year 2
with Year 1
funds, which one would
return of -9.5%, Green Fund
return of 0% &
have the highest value (not with Year 1 return of -9.5%
Year 2 return of
including any fees) at the and Year 2 return of +10%,
0%
end of the second year? Yellow Fund with Year 1 return
of +30% and a year 2 return of
-25%
Orange Fund with
Year 1 return of 0%
& Year 2 return of
4.00
0%: All other choices
lose money.
2. If you had a fund with a
Year 1 return of +30% and
a year 2 return of -25%,
a) +2.5% b) -2.5%, a) +2.5%
what is this fund's a)
a) +2.5% b) b) +2.5%, a) +5% b) +2.5%, a)
average annual return for
2.5%
+5% b) 0%
the two years and b) actual
return for the two year
period?
a) +2.5% b) -2.5%:
Average annual
return for the two
years is ((.30+(.25))/2 = +2.5% The 4.00
actual return for the
two year period is
((1+.30)*(1-.25)-1)= 2.5%
3. Which type of
investment typically
charges the investor the
lowest fees?
Mutual fund - actively
managed, Index fund Index fund passively managed, Bond fund passively
- actively managed,
managed
International funds
Index fund passively managed
4. What is a dividend?
Money a company regularly
(typically quarterly) charges
shareholders to help profits,
Money a company regularly
(typically quarterly) pays
shareholders from its profits,
The interest from a corporate
bond that a company pays the
bond-holder, The new
company entity that results
from a company merger
Money a company
regularly (typically
quarterly) pays
4.00
shareholders from its
profits
Money a
company
regularly
(typically
quarterly) pays
shareholders
from its profits
5. Suppose you have been You will lose your entire 401k,
employed for about a year You may lose some or all of
You may lose
and a half and have been your 401k match, but will get some or all of
offered a better job at a
to keep your contributions,
your 401k
different employer.
You will always get to keep the match, but will
Assuming you have been entire balance of your 401k, A get to keep your
taking advantage of the
judge will need to review the contributions
matching 401k plan, what company charter to decide
4.00
You may lose some
or all of your 401k
match, but will get to 4.00
keep your
contributions
will happen to your 401k if
you leave your current job
before you are fully
vested?
6. What would happen to The buying power would
the buying power of your increase by 8%, The buying
The buying
The buying power
investment after one year power would increase by 11%,
power would
would increase by
if your rate of return was The buying power would
increase by 5% 5%
8% and the rate of inflation increase by 5%, The buying
was 3%?
power would decrease by 1%
7. What is the intended
purpose of a 401k
account?
Save money for emergencies,
Invest money for college,
Invest money for Invest money for
Invest money for retirement, retirement
retirement
Save money for vacation
4.00
4.00
If you had $1,000 to invest into the following funds, which one would have the highest
value (not including any fees) at the end of the second year?
Green = -.45
Purple = -.45
Yellow = -2.5
Orange = 0
If you had a fund with a Year 1 return of +30% and a year 2 return of -25%, what is this
fund's a) average annual return for the two years and b) actual return for the two year
period?
Average annual return for the two years is ((.30+(-.25)) / 2 = 2.5%
The actual return for the two year period is ((1+.30)*(1-.25) -1 ) = -2.5%
Which type of investment typically charges the investor the lowest fees?
Index fund - passively managed
* You are on your own for questions 4, 5, 6, and 7 but you can open other tabs if
it would help to research. Some of them are common sense. Do as well as you
can.