Test Your Investment IQ

Coins. Test your investment IQ.To invest or not? That is the problem when a promoter calls with an offer that sounds like a sure thing. Fraudulent investment promoters lure customers by claiming that the investment cannot be missed. But the promise of big profits usually turns out to be a costly fraud.

Can you tell whether an investment opportunity is solid or risky? Test your investment I.Q. with this quiz. Pick whether it is a solid investment or a risky one. This is from a government pamphlet.

  1. A promoter tells you he’s selling shares in a partnership. You confirm that a large, legitimate firm is making huge profits in a similar business and its stock is doing well. Your promoter says only a few shares in his partnership remain - and they’ll be gone if you don’t send your money by wire transfer. Buying into the next available partnership opportunity will cost three times as much.
    _____ SOLID
    _____ RISKY

  2. A promoter sends you glossy materials by overnight courier. An enclosed note mentions that the business is headquartered in New York, and that offices are located in Chicago, Los Angeles, and Washington, DC. A call to directory assistance in those cities confirms that the promoter has addresses in each one.
    _____ SOLID
    _____ RISKY

  3. A promoter tells you not to worry about any risk in the venture you are considering. The investment is bonded and insured for $50 million and you have received an insurance policy to prove it. You call the insurance company and a representative confirms that they do indeed have a bond for the venture you are considering.
    _____ SOLID
    _____ RISKY

  4. A promoter gives you names of several satisfied customers around the country. When you call, one claims to be an attorney, another a small businessman, and a third a retired professional. All say they have received returns from investing with the promoter and are making profits.
    _____ SOLID
    _____ RISKY

  5. In a phone call, a promoter says the investment he is offering is expected to return about 30 to 40 percent a year, beginning in about 12 months. Best of all, based on the track record, he says there is no significant risk.
    _____ SOLID
    _____ RISKY

  6. A promoter tells you on the phone that the investment he is offering is expected to return about 30 to 40 percent annually within about a year - and your entire investment in 18 months. You check the written materials he sent and find a disclosure: The investment is high-risk and you could lose all your money. You do not find any written claims about the returns.
    _____ SOLID
    _____ RISKY

  7. Because you are considering investing in a venture in the state of Heartland, you call the Better Business Bureau and Attorney General’s Office in the state capital. They tell you there are no complaints against the company. You do some research and find an article on your venture in a local Heartland business paper. The article states that your venture is a multi-million dollar investment firm and its principals have been in the investment business for a combined 30 years.
    _____ SOLID
    _____ RISKY

  8. A promoter tells you his company has structured an investment opportunity as a debt-free general partnership. The partnership will raise capital for a sure-fire high-tech telecommunications business in rural areas. Large corporations are just getting into the business, but because of legal restrictions and profit margins, they are getting into large national markets only.
    _____ SOLID
    _____ RISKY

  9. A promoter says your investment has been approved as safe for IRA funds. He sends you printed forms for a company known as IRA-USA. When you call IRA-USA, a representative tells you that the company manages $100 million in IRA funds. You call IRA-USA’s bank. IRA-USA’s bank tells you IRA-USA has over $100 million in its accounts.
    _____ SOLID
    _____ RISKY

  10. You are considering buying a $10,000 share in a $10 million venture that you learned about through a telemarketer. You see the following chart on the promotional materials you got in the mail:

    ESTIMATED USE OF PROCEEDS:

    Asset Acquisition: 50% $5,000,000
    Marketing Costs: 15% $1,500,000
    Offering Costs: 10% $1,000,000
    Working Capital: 15% $1,500,000
    Consulting Fees: 10% $1,000,000

    The promoter tells you that sales commissions do not exceed 10 percent and that the remainder of the money raised will finance your venture.
    _____ SOLID
    _____ RISKY
Got all the answers? Check your answers here: Answers for Test Your Investment IQ

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