Understanding CDs and Interest Types

Front

Which of the following best describes a Certificate of Deposit (CD)?
Options:
A type of loan with a variable interest rate.
A savings account with a fixed interest rate for a specified term.
A checking account with no interest.
A credit card with a fixed interest rate.

Back

A savings account with a fixed interest rate for a specified term.

Tags

DOK Level 2: Skill/Concept

Front

If you deposit $1,000 in a CD with a simple interest rate of 5% per year for 2 years, how much interest will you earn?

Back

$100

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DOK Level 2: Skill/Concept

Front

Which of the following statements is true about compounding interest?
Options:
It is calculated only on the initial principal.
It does not include interest on interest.
It is calculated on both the initial principal and accumulated interest.
It decreases over time.

Back

It is calculated on both the initial principal and accumulated interest.

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DOK Level 2: Skill/Concept

Front

Calculate the total amount in a savings account after 3 years if $500 is deposited with an annual compounding interest rate of 4%.

Back

$562.43

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DOK Level 2: Skill/Concept

Front

Which of the following assets is considered the most liquid? Real estate, Stocks, Cash, Bonds

Back

Cash

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DOK Level 2: Skill/Concept

Front

What is the primary difference between simple interest and compounding interest?

Back

Simple interest is calculated only on the principal, while compounding interest is on both the principal and accumulated interest.

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DOK Level 2: Skill/Concept

Front

If you withdraw money from a CD before its maturity date, what is likely to happen?

Back

You will incur a penalty.

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DOK Level 2: Skill/Concept

Front

Which of the following best describes the money market? A market for long-term loans and mortgages. A segment of the financial market for short-term borrowing and lending. A market for trading real estate. A market for buying and selling foreign currencies.

Back

A segment of the financial market for short-term borrowing and lending.

Tags

DOK Level 2: Skill/Concept

Front

If a CD offers a 3% annual interest rate compounded annually, how much will a $2,000 deposit grow to after 5 years?

Back

$2,318.55

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DOK Level 2: Skill/Concept

Front

Which of the following is a characteristic of a highly liquid asset? It can be easily converted to cash without affecting its price., It requires a long time to sell., It has a high transaction cost., It is difficult to find buyers.

Back

It can be easily converted to cash without affecting its price.

Tags

DOK Level 2: Skill/Concept