"Lowell Sun Investment Quiz"
1. If you make contributions in your 401(k) plan at work, you
are still eligible to contribute to an IRA.
True
False
True. An individual can contribute
in both a 401(k) and an IRA.
2. If inflation averages 3.5 percent per year, $50,000 of
retirement income in today's dollars would need to grow to _______
to provide the same amount of inflation adjusted income in 10
years.
$70,500
$66,250
$62,000
$58,500
Correct Answer: $70,500
3. A stay-at-home spouse is eligible to have his or her own
IRA.
True
False
True. If the couple files a joint
tax return, the stay-at-home spouse can contribute to an IRA based
on the working spouse's compensation. For tax year 2008, each
spouse age 49 and below can contribute up to 5,000 in an IRA.
Each spouse age 50 and up can contribute a maximum of $6,000 into
an IRA.
4. A Coverdell (ESA) education savings account can be withdrawn
tax-free to pay for a child's college as well as Kindergarten
through grade 12 qualified expenses and tuition.
True
False
True: Unlike 529 College Savings
Plans, a Coverdell Education Savings Account can also be used
for qualified expenses associated with attending a public or private
elementary or secondary school.
5. Where does a global mutual fund invest?
a. In other countries but not in the U.S.
b. In the U.S. and other countries
c. In European countries only
d. Anywhere the portfolio manager wants to invest
Correct Answer: d
A global fund invests in both the United States and other countries.
International funds invest in other countries, but not in the
U.S.
6. Draw a line connecting each type of mutual fund to its
most appropriate matching benchmark or index.
Correct Answer:
7. A person working past the age of 701/2 can continue making
contributions to _______.
Roth IRAs
Traditional IRAs
Both IRA's
Neither IRA
Correct Answer: Roth IRAs
One of the attractions of the Roth IRA is that you have the option
to continue making contributions as long as you have earned income.
This is not the case with a Traditional IRA, which does not permit
contributions beginning in the year in which you reach age 70½.
8. A $100,000 investment that gains 50% in year one, and loses
30% the following year, would have a total gain of ________ after
two years.
5%
10%
15%
20%
Correct Answer: 5%
A $100,000 investment that gains 50 percent ($50,000) in year
one is worth $150,000. A $150,000 investment that now loses 30%
($45,000) is worth only $105,000. The total two-year gain is only
5%.
9. In general, it's a good idea to name your "estate"
as beneficiary of your IRA savings.
True
False
Correct Answer: False
Your estate is usually the worst beneficiary because your IRA
will have to go through probate so the court can decide who inherits
it. Leaving an IRA to your estate also means that it will become
subject to any creditors of your estate. These unintended consequences
can be easily avoided by naming a person or persons as a beneficiary
on your IRA account.
10. If a fund charges an expense ratio of 1 percent:
a. You pay a one-time fee of 1 percent after holding shares
for a year
b. Your fund's returns are reduced by 1 percent each year you
own the fund
c. The amount you invest in a fund is reduced by 1 percent at
the time you buy shares
d. You pay a 1 percent load or sales charge to a broker at the
time you buy shares
Correct Answer b: Your fund's returns
are reduced by 1 percent each year you own the fund.
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