"Answers to Lowell Sun Investment Quiz"

1. According to Morningstar, this is what type of mutual fund?

Large Value Fund
Small Growth Fund
Small Value Fund
None of the above

Answer: Large Value Fund

2. True or False
In the event of your death, assets held in your retirement accounts are distributed to beneficiaries according to your will.

Answer: False
When you pass away, assets in retirement accounts are transferred according to the designated beneficiaries listed on the retirement accounts beneficiary form. In other words, a beneficiary form overrides a will.

3. Which type of investment should never be placed inside a 401k or IRA account?

Growth Fund
Index Fund
Municipal-Bond Fund

Answer: Municipal Bond Fund
The one investment that should never be placed inside a retirement account are municipal bonds and bond funds. That's because the interest is already tax-free, and by placing them inside a retirement account, the earnings will be taxed as regular income when you withdraw them, thereby turning a tax-free investment into a taxable one.

4. True or False
For purposes of qualifying for financial aid, it is better to have savings invested for college in a parents name rather than the child's name.

Answer: True
When it comes time to qualify for financial aid for college, the government formula expects up to 20 percent of the assets in a child's account to be used to fund college costs each year. By contrast, only 5.6% of assets held in the parent's names are to be used to pay for college each year. That means for every $100 in the student's name, you will be expected to spend $20 to pay for college. However, for every $100 in the parent's name, you will be expected to contribute only $5.60 to pay for college.

5. Which fund family has the lowest mutual fund expenses?
Fidelity
Vanguard
American Funds

Answer: Vanguard - Average annual fund expense is .17%
American Funds - Average annual fund expense is .95%
Fidelity - Average annual fund expense is 1.12%
(Data: Morningstar)

6. All of the following are types of asset classes except...
Stocks
Mutual funds
Bonds
Certificates of deposit

Answer: mutual funds
Stocks, Bonds, and Certificates of Deposit (Cash) are all types of asset classes. Mutual funds are a type of investment.

7. Draw a line from the following investments to their annualized return for the 10 year period from December 31, 1998 through December 31, 2008.

 

8. One dollar invested in stocks in 1802 (including dividends and adjusted for inflation) would be worth $480,000 at the end of 2008 .The same dollar invested in gold would be worth ______ in 2008.

$2.59
$259,000
$2,590,000

Answer: $2.59

9. Under which of the following conditions will you pay a 10% penalty if you withdraw contributions from your Roth IRA before age 591/2?

Disability
Childs college education
To purchase a car
All of the above
None of the above

Answer: None of the above
With a Roth IRA, you can always withdraw contributions at any age, for any reason, tax and penalty free.

10. If a penny doubles in value every day for one month, how much would it be worth after 31 days?

$1,730
$10,730
$100,730
$10,730,000

Answer: $10,730,000
No wonder Albert Einstein described compound growth as the eighth wonder of the world!

Day 1: $.01
Day 2: $.02
Day 3: $.04
Day 4: $.08
Day 5: $.16
Day 6: $.32
Day 7: $.64
Day 8: $1.28
Day 9: $2.56
Day 10: $5.12
Day 11: $10.24
Day 12: $20.48
Day 13: $40.96
Day 14: $81.92
Day 15: $163.84
Day 16: $327.68
Day 17: $655.36
Day 18: $1,310.72
Day 19: $2,621.44
Day 20: $5,242.88
Day 21: $10,485.76
Day 22: $20,971.52
Day 23: $41,943.04
Day 24: $83,886.08
Day 25: $167,772.16
Day 26: $335,544.32
Day 27: $671,088.64
Day 28: $1,342,177.28
Day 29: $2,684,354.56
Day 30: $5,368,709.12
Day 31: $10,737,418.24

 

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