Personal Finance Unit 5 Test Review

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.

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

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.

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 is a feature of a money market deposit account?

• No minimum balance requirements

• Unlimited transactions every month

• Tiered interest rates

• The money must remain in the account for a specific period of

  time

In relation to other options, how liquid is a savings account?

• More liquid than cash

• Less liquid than mutual funds

• More liquid than a certificate of deposit

• More liquid than a checking account

Which is a feature of a certificate of deposit (CD)?

• Funds deposited in a CD are held for a certain length of time.

• Funds deposited in a CD have tiered interest rates.

• Funds deposited in a CD are very liquid.

• Funds deposited in a CD can be accessed via check or debit card.

Which correctly describes the security level of savings tools?

• Savings tools are not secure because they have a high risk of

  losing money.

• Savings tools are secure because they are protected by the U.S.

  government against loss.

• Savings tools are very secure because there are not risks involved with saving or investing.

• None of the above is true. It would be safer to keep the money

  at home in a shoe box.