What’s Your Investment IQ?

Investing in the financial markets is now part of everyday life. Yet, many Americans remain in the dark about investment products and how they work. Interested in testing your knowledge? Check your answers at the bottom of the article!

Question 1: When a company goes bankrupt, who gets paid first?

A. Preferred Stockholders

B. Bond Owners

C. Secured Creditors

D. Suppliers and Contractors

Question 2: Which of the below is one difference between an open-ended mutual fund and an ETF?

A. Active Management

B. Pools many investors' savings

C. Portfolios hold many individual securities

D. Shares trades throughout the day

Question 3: If you believe interest rates will increase, what should you consider doing?

A. Sell stock holdings

B. Sell long-term bonds

C. Buy long-term bonds

D. Buy gold

Question 4: A convertible bond is…?

A. A bond that can be converted into shares of a company’s stock

B. A bond without a "roof" on the interest rate it may pay

C. A bond that can be converted to cash

D. A bond that pays no interest

Question 5: The U.S. Gross Domestic Product (GDP) is a measure of...?

A. The total value of the economy's assets

B. The dollar value of the output of all publicly traded companies

C. The annual aggregate output of the manufacturing and mining sectors

D. The monetary value of all services and goods produced

Question 6: Selling short means...?

A. Selling shares before they reach their peak price

B. Selling borrowed shares of a company

C. Selling shares of a stock you already own

D. Selling shares in the after markets

Question 7: An annuity that is purchased with a single lump sum and provides income within a year of purchase is…?

A. An index annuity

B. An immediate annuity

C. A fixed rate annuity

D. A variable annuity

Question 8: The Federal Open Market Committee regularly assesses the economy and its monetary policy. How often do they meet each year?

A. Once about every six weeks

B. Monthly

C. Quarterly

D. Semi-annually

Question 9: You are permitted to change from one 529 College Savings Plan to another plan…?

A. Once in a lifetime

B. As often as you like

C. Once every 12 months

D. Just five times over the life of the beneficiary

Question 10: Investing in overseas markets involves risk that investing in domestic markets does not. Identify one of those risks.

A. International stocks move on news from around the world

B. The time difference can lead to unanticipated pricing discrepancies

C. Stocks are traded on different exchanges

D. Currency fluctuations can affect investment returns

Answers:

Question 1: C (Secured creditors)

Question 2: D (Shares trades throughout the day) Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Question 3: B (Sell long-term bonds)

The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity an investor will receive the interest payments due plus his or her original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.

Question 4: A (A bond that can be converted into shares of a company’s stock)

Question 5: D (The monetary value of all services and goods produced)

Question 6: B (Selling borrowed shares of a company)

In order to sell short, you are required to open a margin account. Selling a security short involves greater risk, including the risk of unlimited losses in a position. Selling short is not suitable for all investors.

Question 7: B (An immediate annuity) The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59 ½, a 10% federal income tax penalty may apply (unless an exception applies).

Question 8: A (Once about every six weeks)

Question 9: C (Once every 12 months)

A 529 plan is a savings plan that allows individuals to save for education on a tax-advantaged basis. In addition to college, 529 plans may now be used to fund elementary and secondary education. The tax treatment of 529 plans is only one factor to consider prior to committing to a savings plan. Also consider the fees and expenses associated with the particular plan. Whether a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.

Question 10: D (Currency fluctuations can affect investment returns)

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risk unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility. The return and principal value of stock and preferred stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.