Wednesday, February 3, 2010

Part 11: It is time to take stock

Every person who sets out to train / explain / teach / pontificate sooner or later succumbs to the urge of running a quiz to see whether people have been reading his stuff all this while.  And every person who takes such a quiz tries to get the answers without reading the stuff – what are friends for?

Who are we to resist these age-old temptations?  Let’s try to do a recap-cum-quiz.  The rules are that you can refer to the past issues (available in the Archives – go to the bottom of the home page); you can google for the answers if you don’t get them directly (not every question will be from the syllabus!); or you can phone a friend – this is however fraught with risk since he/she may know less than you do.  Send in your answers by the time indicated to be eligible to win prizes – the kind of prize will be restricted by the budget available – you can thus pretty much guess what the prizes will be.  Lots will be drawn from the correct entries to select the winners – who said investment is all about knowledge and ability only – you need luck as well.  The decision of the judges will of course be final and they will be anonymous just so that you don’t try to bribe them.  The first prize winner will get a chance to audition for the Fidelity Band.

1) If you estimate that your current monthly expenses (for you and your family of four) are in the region of Rs.70,000 per month, what is the corpus you would need today, in order to be able to retire?  It’s a very open-ended question so let’s put in some more conditions.  Use the method already explained, and make a similar assumption for taxes. Assume that your corpus will yield 7% p.a. Since you still don’t own a house, you need to add Rs.50 lakhs to your final answer. I am looking for one number, in Rupees.

2) Which of the following are assets in the sense that we have defined it? (a) Yacht  (b) Motorbike (c) gold ornaments (d) Cash (e) Equity Shares (f) Units in a Money Market Mutual Fund (g) RBI Bonds (h) Kisan Vikas Patra (i) 30% discount voucher of Shoppers’ Stop

3) When interest rates go up, the NAV of your long-term GSec Fund (a) goes up (b) goes down (c) stays flat (d) fluctuates (e) can’t say

4) You invest Rs. One Lakh in your savings bank account. (A) What would it amount to at 3.5% per annum in 10 years? (B) What would be the Net Present Value of that amount today if you discount it at the expected inflation rate which is 7%? (2 points)

5) Your credit card company charges you 3.1% interest per month, compounded monthly.  You have a credit card balance of Rs.50,000.  How many months (rounded off to the nearest month) will it take to repay the whole balance assuming you repay 5% of the monthly outstanding every month? Assume the balance is repaid the moment the outstanding balance drops below Rs.100.

6) You take a personal loan of Rs.50,000 to repay the credit card balance.  The loan is at 15% per annum (@ 1.25% p.m.), interest calculated monthly on the outstanding balances.  You repay 5% of the outstanding balance every month. How long will it take you, in months (rounded off to the nearest month) to repay the entire loan? Assume the loan is repaid the moment the outstanding balance drops below Rs.100.

7) Arrange the following in ascending order of liquidity (least liquid first, most liquid last). Land, Cash, Car, Equity stocks, US Dollar bills, Five-year Bank FD opened three years back, your Wedding Ring made of gold.

8) Arrange the following loans (assuming you are the one who is doing the borrowing) in order of most desirable to least desirable, in terms of interest rates (a) house loan (b) personal loan from a bank (c) credit card debt (d) overdraft against security of shares from a bank

9) (A) How many companies is the BSE Sensex composed of? (B) What proportion of the Sensex is represented by the top 5 shares by market capitalization? Answers within +/- 2% will be taken as correct. (2 points)

10) Index Funds are usually (a) actively managed (b) passively managed (c) not managed

11) You are about to retire in five years’ time.  Conventional financial wisdom indicates that you should currently have most of your money invested in (a) 100% Equity (b) 100% Debt (c) Predominantly Equity (d) Predominantly Debt.  Assume Equity and Debt are the only two investment options available.

12) 916 Gold refers to how many carats?

13) If you want to retire, the following things are important to do: (1) Keep rigorous spending targets (2) Keep aside the balance by Paying Yourself First (3) Investing the balance to earn steady returns (4) Investing for the long term and allowing the money to compound (5) Having a judicious mix of less risky and more risky investments depending on life-stage and other factors (6) All the above

14) You invest Rs. One Lakh in a five-year deposit with a finance company that promises to double your money every six months.  At the end of five years, how much money are you likely to get back?  Hint: Not everything in the world was achieved with Math.

15) A Systematic Investment Plan is good because (a) it inculcates discipline in investing (b) of Dollar cost averaging (c) It takes away the hassle of thinking and analysis, while retaining good investment wisdom (d) all the above

16) Diversified Equity Funds diversify by (a) investing in a broad range of Equities (b) investing in a mix of Equity, Corporate Debentures and Government Securities (c) buying and selling often (d) investing in only companies that sell a diverse range of products (e) investing in varied geographies (f) all the above

17) Money Market Funds invest predominantly in securities with maturities exceeding one year – Yes/No

18) Fidelity believes ‘more’ in which (you can indicate one or more choices) of the following (remember ‘more’ is only a matter of degree): (a) top-down stock picking (b)  bottom-up stock picking (c) quick short-term returns (d) investing for the longer term

19) Peter Lynch managed which Fidelity Fund?  Name one book that he has written?

20) Who is known as the Sage of Omaha? Hint: It is not a-la-carte.

Send in your answers to ______ by _____.  Winners will be announced and answers posted on the BitsnBytes website on ______.

All the Best!

(P.S.  The fact that you manage to answer all the above questions correctly will not by itself make you a successful investor.  If you manage to answer very few of them, it means you dislike reading, as do many rich people I know)

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