Personal Finance 5.01

Dylan is preparing a presentation about saving and the presentation rubric says that he must include an explanation of compounding interest. Which concept would be the best one to include in his presentation to show that he understands compounding interest?

• Interest earned on the principal investment

• Any form of interest earned from saving or investing

• Earning interest on interest

• The effect interest has on the total return on investment

Which statement best reflects the philosophy of “pay yourself first”?

• An individual should save whatever money is left over after paying monthly bills.

• An individual should pay all fixed expenses before paying flexible expenses.

• An individual should set aside a predetermined amount of money for saving before using any of that money for spending.

• An individual should spend money on the items and activities enjoyed in life before paying any other expenses.

Kylee’s Personal Finance class has been discussing the importance of understanding liquidity and she is trying to explain the term to another student. Which statement is the most correct description of liquidity?

• How quickly and easily an asset can be converted into cash

• The amount of savings available

• A measurement of how much a person or household owns once all debts have been paid

• The amount of money needed to pay for the necessities and comforts currently enjoyed

When a goal has been set to save $100.00 a month for an emergency fund of $2,000.00, giving up food from the vending machine to achieve that goal is the:

• opportunity cost.

• interest.

• specific part of the SMART goal.

• trade-off.

When taking advantage of the time value of money, which is most likely to result in the largest return?

• Invest a large principal amount of money and then make no additional investments.

• Invest as long as possible and at the highest interest rate possible.

• Invest a small amount of money for a short period of time at the highest interest rate possible.

• Invest at a high interest rate because interest is the only factor that affects return.

Compound interest is best defined as:

• interest earned on the principal investment.

• any form of interest earned from saving or investing.

• earning interest on interest.

• the effect interest has on the total return on investment.