COVER

A FINANCIAL LITERACY TEST

January 27 1997
COVER

A FINANCIAL LITERACY TEST

January 27 1997

A FINANCIAL LITERACY TEST

COVER

How knowledgeable are Canadian investors? Not very, to judge by the results of a study by Marketing Solutions, a Toronto-based consulting company. Recently, the firm posed a series of questions about investment issues to financial decision-makers in 1,000 households with savings and investments of $10,000 or more. On average, respondents answered only three of the eight questions correctly.

Readers can test their own knowledge by filling out the following questionnaire and comparing their responses to the answers below.

1. If you invest in a mutual fund containing bonds or mortgages and interest rates go up, what can you expect will happen to the value of your fund?

a) Stay the same

b) Increase in value

c) Decrease in value

5. You have invested $100,000 in a five-year GIC at a chartered financial institution that goes out of business. What is the maximum amount of your funds that would be protected by the Canadian government through the Canada Deposit Insurance Corp.?

a) $25,000 d) $75,000

b) $40,000 e) $100,000

c) $60,000

6. Which of the following best describes a “capital gain”?

a) The profit you make when you sell stocks or bonds.

b) The annual increase in your net worth.

c) The interest you receive on an investment.

2. What is the maximum percentage of an individual’s RRSP holdings that can be put into investments outside Canada?

d) The increase in value of your RRSP investments.

e) Financial gifts from another family member.

a) None d) 50 per cent

b) 10 per cent e) No limit

c) 20 per cent

7. Which of the following investments, since 1950, provided Canadians with the best returns before taxes?

3. You have a choice of receiving $1,000 in bank interest, $1,000 in rental income, $1,000 in dividends from a Canadian stock or $1,000 as a bonus from an employer. Which of these should give you the most dollars after deducting the taxes owed?

a) Long-term corporate bonds

b) Canada Savings Bonds

c) Five-year GICs

d) Canadian stocks

e) U.S. stocks

a) Dividends

b) Net rental income

c) Bank interest

d) Bonus

e) All the same after taxes

4. You have been investing in shares typical of those sold on the Toronto Stock Exchange for the past 20 years. To the best of your knowledge, in how many of those years did the stock market go up?

a) 4 out of 20 d) 12 out of 20

b) 7 out of 20 e) 16 out of 20

c) 10 out of 20

8. To the best of your knowledge, which of the following is closest to the current level of the Dow Jones industrial average?

a) 100 d) 10,000

b) 1,000 e) 20,000

c) 5,000

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