Wise Practice Test (Interest & Cost of Money)

To determine the time value of depositing $100 in a savings account, a person needs to know the interest rate and

• A.  her total income.
• B.  the rate of inflation.
• C.  whether the account is FDIC protected.
• D.  whether the bank offers overdraft protection.

Lamar believes that interest rates are going to fall in the near future and remain low for a considerable period of time. She should invest in:

• A.  Nothing, she should put her money under her mattress
• B.  A variable rate certificate of deposit
• C.  A long-term, fixed rate certificate of deposit
• D.  A short-term, fixed rate certificate of deposit

The cost to use someone else's money for a period of time is called the:

• A.  Interest rate expressed as a percentage
• B.  Opportunity cost
• C.  Minimum payment
• D.  Inflation rate

Money received today is worth more than the same amount of money received sometime in the future is:  

• A.  The Rule of 72
• B.  The time value of money
• C.  Not true
• D.  Investing

The information that a lender must disclose to consumers applying for a cash loan is:

• A.  The formula for compounded interest
• B.  The annual percentage rate (APR), and/or the finance charge
• C.  Full dollar amount being paid back on the loan over its life
• D.  The tax obligations      

Interest earned on interest is known as:  

• A.  Simple interest
• B.  True interest
• C.  Compounded interest
• D.  Variable interest

The time value of money refers to the concept that money:  

• A.  Received today is worth more than the same amount of money received in the future
• B.  Changes in value along with interest rates
• C.  Money will double in value over seven years
• D.  Is the foundation for developing a financial plan

Why might rising interest rates depress stock prices:

• A.  Stock investors are lured away from interest-paying investments to stocks
• B.  Rising interest rates can result in lower business profits
• C.  Rising interest rates usually means the economy has less
• D.  Rising interest rates can result in higher business profits

Who benefits the most from inflation?

• A.  Long-term fixed rate borrowers
• B.  Lenders
• C.  Persons on fixed incomes
• D.  The government

What should a person do when he believes he is being charged too high a rate of interest for a loan by a lending institution?

• A.  Accept the loan but pay it off early.
• B.  Ask the lending institution to lower its rates.
• C.  Notify the lending institution about state usury laws.
• D.  Notify the local Better Business Bureau.