Archive for the ‘Economics’ Category

Real World Graduation 48: Paying Bills

RealWorldGraduation_Question_48_Paying_Bills   <– PDF

Which of these should be paid first?

a) Rent or mortgage

b) Car payment

c) Credit card bill

d) Any utility bill (gas/electric/water)

e) A bill from a doctor, dentist, chiropractor, or lawyer

(The answer is on p. 2 of the PDF.)

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Real World Graduation Question 46: Music Videos

RealWorldGraduation_Question_46_Music_Videos  <– PDF

The first music video network, called “Music TV”, better known as MTV, was launched in Aug 1981. It began by showing video clips of musical acts, and later expanded to commentary on popular culture, reality shows, satire, and some political activism, mostly concerning the environment and getting young people to vote.  There are now several music video networks, among them are VH1 and CMT.  What is the underlying purpose of the music video networks?

a) To finally give young people an opportunity to see their favorite musical acts without censorship by the traditional networks

b) To allow a youth-oriented culture to express itself over the airwaves

c) To provide an opportunity for up-and-coming musical acts to obtain some exposure

d) To allow the recording companies to test the potential popularity of their new acts before committing to a full contract

e) All of the above

(The answer is on p. 2 of the PDF.)

 

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Real World Graduation, Question 44: Bond Commissions

RealWorldGraduation_Question_44_Bond_Commissions   <– PDF

Suppose Christine has $1000 to invest for one year only (she will cash out after 12 months), and is only interested in conservative investments such as mutual funds based on high-quality bonds that have a guaranteed annual return. She is presented with three options: a) Bond Fund A with a guaranteed return of 3% and no sales commission; b) Bond Fund B with a guaranteed return of 6% and a sales commission of 3%; and c) Bond Fund C with a guaranteed return of 10% and a sales commission of 7%.  Assume that the risk of all three options is zero.  Sales commissions are always paid up-front.  Choose the correct statement for this one-year investment:

a) Bond Fund B is twice as good an investment as Bond Fund A (6/3 = 200%)

b) Bond Fund C is 166% better as an investment than Bond Fund B (10/6 = 166%).

c) Bond Fund C is 333% better as an investment as Bond Fund A (10/3 = 333%)

d) Bond Fund C is a better investment than splitting the $1000 between Fund A and Fund B in any ratio.

e) All of the above are true.

(The answer is shown on p. 2 of the PDF.)

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Real World Graduation, Question 43: Gold Coins

RealWorldGraduation_Question_43_Gold_Coins   <– PDF

Gold has historically been recognized as the ultimate “safe” money because it never loses its value. On the other hand, many paper currencies throughout history have eventually become worthless.  Some noteworthy examples are Continental dollar issued by Congress during the American Revolution (1777-1781), the German mark in 1923, the Yugoslav dinar in 1994, and the Zimbabwean dollar in 2008.  Many people choose to hedge against paper currencies by purchasing gold coins as a form of insurance, which could be sold or bartered in the event the paper currency ever fails.  Many types are offered for sale as follows:

a) Authentic Gauden’s $20 Double Eagles (originally issued between 1908 and 1929). A total of approximately 65,000,000 were originally minted.  It is 34 mm in diameter, and contains 42.0 milligrams (mg) of pure gold.  Each can be purchased for $ 29.95 US.

b) Tribute proof $10 Liberty Head Eagles (originally issued between 1866 and 1907). Approximately 64,000,000 total were minted.  It is 27 mm in diameter, and contains 21 mg of pure gold.  Each can be purchased for $ 19.95 US.

c) 24 carat gold clad $10 Indian Head Eagles (originally issued between 1908 and 1933). Approximately 15,000,000 total were minted. It is 27 mm in diameter, and contains 19 mg of pure gold.  Each can be purchased for $ 19.95 US.

d) Private mint authorized $5 Indian Head Half Eagles (originally issued intermittently between 1908 and 1929). Approximately 14,000,000 total were minted.  It is 21.6 mm in diameter, and contains 8.5 mg of pure gold.  Each can be purchased for $ 9.99 US.

A famous company advertises these coins for sale on TV, radio, and newspaper ads, reminding the audience that these coins are rare and out of circulation, and that gold is always highly sought after both for its intrinsic value and in the form of beautiful old coins. The ad goes on to remind the audience that gold coins should be part of every investment portfolio.  Which of these coins offers the best investment value?

a) The Double Eagle, because it is the largest physical coin and has the second-largest amount of pure gold.

b) The Liberty Head, because it contain the greatest amount of pure gold.

c) The Indian Head Eagle, because it has the lowest price and is still pure gold.

d) The Half Eagle, because it is the rarest one (fewest were minted), which makes it more valuable.

e) It is best to have a variety of these coins as an investment. The prudent investor, or person who wants some insurance against a currency collapse, would be wise to buy some of each, but not necessarily in equal amounts.  This is important to diversify one’s gold investments, even more so than stocks and bonds.

The additional information required to determine the best investment value is as follows:

  1. The current price of gold is about $120 per troy ounce.
  2. There are 31.103 grams per troy ounce, and 1000 mg per gram.

(The answer is shown on p. 2 of the PDF.)

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