PFL Review

PFL Review

Multiple Choice

Multiple Choice from Item Bank

Which banking instrument usually pays the LOWEST interest rate?

• certificate of deposit

• money market

• savings

• checking

Misconception

• Savings account are the lowest interest rate for savings tools

• Checking account has lower interest rate than any saving or investing method

Background

• The U.S. Department of the Treasury sells savings bonds. These bonds are backed by the government and will not drop below their face value cost if redeemed after the full maturation date.

• The stock market is a place where stocks of publicly listed companies are traded. Prices and the value of the stocks vary from day to day on the stock exchange depending on the price the buyer and seller agree upon.

• How are U.S. Treasury Department savings bonds different from stocks bought on the stock market?

Multiple Choice

How are U.S. Treasury Department savings bonds different from stocks bought on the stock market?

• Investment in U.S. Treasury Department savings bonds always results in greater profits than investment in stocks.

• U.S. Treasury Department savings bonds are less affected by maturation dates than stocks.

• U.S. Treasury Department savings bonds are riskier investments than stocks.

• The return on investment is guaranteed for U.S. Treasury Department savings bonds but not for stocks.

Misconception

• Bonds are a low risk/low reward

• You won't make tons of money off of them, but you will not lose money either

Multiple Choice

What is the lowest risk investment (do not include savings).

• Certificate of Deposit

• Government bonds

• Mutual Funds

• Corporate Stocks

Misconception

• While a CD is very low risk, it is a savings tool NOT investment

• Government bonds are much less risky than mutual funds or stocks.

Multiple Choice

Michael began saving for his daughter Tamara’s college education the year she was born. Initially he invested most of his money in mutual funds. Now that Tamara is fifteen and college is two years away, he has moved most of his money to certificates of deposit. Which reason BEST explains why he rebalanced his investment portfolio?

• Reduce risk

• reduce taxes

• increase liquidity

• increase potential rate of return

Misconception

• Mutual funds offer the potential for greater reward than a CD; however, they are also much riskier and have the potential to lose all the money he has saved

• He would switch to a CD because while he won't make more money, the money will be safe and available when Megan goes to college

Multiple Choice

Sometimes it’s necessary to borrow for major purchases like an education, a car, a house, or maybe even to meet unexpected expenses. Your ability to get a loan generally depends on your credit history, and that depends largely on your track record at repaying what you’ve borrowed in the past and paying your bills on time. So, be careful to keep your credit history strong.

• Good credit history allows an individual to borrow money at a lower interest rate.

• Good credit history guarantees that an individual can borrow money at a higher interest rate.

• Bad credit history guarantees that an individual can borrow money at a fixed rate.

• Bad credit history helps an individual borrow money at a lower interest rate.

Misconception

• Read too quickly/trying to finish the test

• You want a lower interest rate on a loan because over time, that means you pay less