Investing W!SE Review - CodeRVA

Investing W!SE Review - CodeRVA

Multiple Choice

Can Cathy withdraw money from her IRA

savings account?

Answer A Money cannot be withdrawn from an IRA before

age 59

Answer B There is a 10% penalty on any money she takes

out before age 59

Answer C She can take out the money at any time since

she made the deposits

Answer D There is a 50% penalty if she does not start

withdrawing money at age 59

• a

• a

• a

• a

Multiple Choice

One of the benefits of holding an investment for

over a year rather than selling it in less than a

year is that the

• capital gains on the investment will be taxed at a

  
  

  lower rate.

• fees will not be charged by brokers for selling the

  
  

  investment.

• money earned on the investment will be

  
  

  considered tax-free.

• profits on the investment can be averaged over

  the length of time the investment is held.

Capital Gains

Capital gains are profits made from the sale of

capital assets such as stocks and bonds and are

tax deferred until the asset is sold. Capital assets

that are held over one year are considered long-

term capital gains and are taxed at a lower tax

rate or in some cases are not taxed at all.

Multiple Choice

Interest earned on interest is known as:

• Variable interest

• Interest Squared

• Compounded interest

• Simple interest

Multiple Choice

To determine the time value of depositing $2,000

in a savings account, a person needs to know the interest rate and

• whether the bank offers overdraft protection.

• the rate of inflation.

• whether the account is FDIC protected.

• her total income.

Time Value of Money

• The time value of money is a way of looking at how much a saving or investment is worth at the end of a period of time when it is compared to the rate of inflation during that period and the person's earning power.

• It may not seem as though depositing $100 a month in a retirement account when someone is 23 makes a whole lot

  of sense; why not wait until age 40 when it will probably be a lot easier to deposit $250 or $30

Time Value of Money

• Compound interest enables the saver to earn interest on the interest that was earned earlier

• However, the other factor to consider in making deposits to a regular savings account is the rate of interest as compared to the rate of inflation. If the annual rate of inflation is 03% and the interest earned on money is 01%, the deposit is actually going to have less purchasing power at the end of the year than it did at the start.