Have we taught a generation of college graduates to vilify capitalism without doing it the honor of knowing how it works? Spot checks at New York’s Penn Station reveal that a vast majority of college-educated commuters do not have a clue about the relation of the prime rate to the federal funds rate, the tax advantage of capital gains over wages, the difference between a progressive income tax and a sales tax, the reason bond prices go up when interest rates go down, and the best age at which to start taking Social Security benefits. This test for advanced financial literary was devised by a team of professors at Columbia, Harvard, Stanford, and the University of Pennsylvania. – DL
1) The Dow-Jones Industrial Average was created by
a) Charles H. Dow, either alone or with Edward Jones, two co-founders of the company that bears their names
b) Charles W. Dow in partnership with Ernest Jones, an economist who wrote Sigmund Freud's biography
c) Standard & Poor’s
d) Dow's stepdaughters Jane and Martha Bancroft, on instructions from Clarence Barron prior to his acquisition of the company in 1902
e) Charles X. Dow either alone or in partnership with the Jones of Jones & Laughlin
2) According to the Dow Theory, there are three phases to a primary bull market and three to a primary bear market. The theory was developed by which of the following, for which purpose:
a) Charles W. Dow and Alexander Hamilton, to develop a metric to gauge the wealth factor associated with the Louisiana Purchase
b) Charles H. Dow, and refined and sustained after his death in 1903 by his understudy William Hamilton, for the purpose of predicting stock fluctuations
c) Elmer Bernstein, Carolyn Leigh, and Max Shulman, the Tony Award-winning producers of the musical comedy How Now, Dow Jones? (1967), mainly for laughs and the sheer pleasure of it but also to entertain audiences, employ actors and musicians, and make a profit at the box office, all by poking fun at the academic study of risk, economics, and finance
d) John Maynard Keynes in a 1938 letter to President Roosevelt arguing that “the present recession is partly due to an ‘error of optimism’ which led to an overestimation of future demand” and that continuation of “public works and other investments aided by Government funds or guarantees” was essential going forward.
e) Herbert Henry Dow, a grandson of the founder of Dow Chemical, in 1969, as a way to divert public attention from protests against the use of napalm, which the company manufactured, during the war in Vietnam.
3) Mutual funds are
a) An attempt by rogue elements in the legal profession to monetize the value of a married couple’s community property
b) The amount on the paycheck that is left after all taxes, charges, and fees have been deducted
c) A way for individual investors to hold a basket of stocks and other securities
d) A recurring loophole that allows high-ranking corporate executives to rent hotel rooms at clients’ expense, entertain guests there, and not have to report the sum to the IRS
e) Often cited as proof that “buy low, sell dear” remains the first rule of investing ahead of “sell in May and go away” and “the market has to climb a wall or worry”
4) Standard & Poor’s is a financial firm that
a) traces its history to the 1941 merger of Poor's Publishing and Standard Statistics
b) has Poor in its name as a warning to over-zealous investors
c) is a credit rating agency that roiled markets four summers ago by lowering the credit rating of the US government
d) publishes an index of the stock market performance of the 500 largest corporations in the United States
e) all of the above except b
5) Lehman Brothers
a) arranged the sale of Babe Ruth from the Boston Red Sox to the New York Yankees
b) was, in the person of Meyer Wolfsheim, then executive vice president, behind the fixing of the 1919 World Series
c) quintupled its assets by selling the Dow Jones Industrials short in August 1929
d) traces its origins to a dry goods store in Montgomery, Alabama, founded by German-Jewish immigrant Henry Lehman shortly after he came to the US from Bavaria in 1844.
e) broke with Wall Street tradition when Peter Lehman, a war hero who had become the face of the firm, endorsed the economics of deficit spending as articulated by John Kenneth Galbraith
6) When the Wall Street Journal published its first issue on July 8, 1889, it was priced at “two cents” and led off with a story about American “operators identified with the bear party [who] sent early orders to London” in preparation for the opening of the bear market there. Which of these statements is true?
a) From the fact that it was priced at two cents, we get the expression “I’ll put my two cents in.”
b) The “bear market” was a market in bearskins
c) The “bear market” in London introduced the idea of selling stocks short often on the basis of what we today would call “insider trading”
d) The Bull-Moose Party in the United States was formed, in part, because of the pressure of the “bulls,” or long-term investors, to counter the negativity of the bear marketers, on whom the New York Times blamed the panic and sell-off of 1893
e) In July 1889, the President of the United States was Benjamin Harrison and the vice president was Levi P. Morton, a Vermont-born banker and loyal supporter of Ulysses S. Grant, whose gracious good manners made him a natural to serve as chairman of the Republican National Committee.
7) On September 17, 2001, the Big Board eliminated the position of honorary chairman. The last to hold this post was
a) Frederick Usher (heir to the Rodney Usher real estate fortune)
b) Meyer Wolfsheim
c) Mikhail Gorbachev
d) Muriel Siebert
e) None of the above
8) What security analysts call a price-earnings ratio (“p/e”) is
a) the stock’s price divided by its underlying book value
b) the stock’s price divided by its annual dividend per share
c) the stock’s price divided by its net earnings per share
d) the compensation of the firm’s CEO divided by the number of employees in the company
e) the company’s revenues less expenses and taxes multiplied by pi divided by the square root of a number designated quarterly by the Federal Reserve Board
9) Experts tout the benefits of “dollar-cost averaging,” which means
a) the dollar is the safest bet in foreign exchange markets
b) invest a little at regular intervals
c) ever since President Nixon took the United States off the gold standard in 1971, the greenback derives its value from the average daily cost of production of bills and coins at the Department of the Mint (including operating expenses and liabilities)
d) the average of your expenses per month, which, when multiplied by twelve, may be used to predict your ability to take on significant new debt, such as the purchase of a house or the cost of four years at an elite college
e) reversion to the mean
10) Which two of the following are not associated with the Great Depression?
a) a national unemployment rate of 24.9 % in 1933 (whereas, during the Great Recession, the rate peaked at 10% in October 2009)
b) a bank holiday declared by President Roosevelt in 1933 to deter a run on the banks
c) the New Deal
d) the Iron Curtain
e) the Great Society
Extra credit: identify the painting, by title and by painter, that illustrates this quiz.
-- David Lehman
10) d & e
Posted by: Josiah Wedger | November 26, 2015 at 08:12 PM