Standard 5: Saving and Investing

Which of the following statement is TRUE?

• Savings and investing is only for wealthy people.

• Savings and investing is important for people of all income levels.

• Savings is only for people with limited income and investing is for people with high levels of income.

• Savings is only for people with high levels of income and investing is for people with limited income.

Inflation refers to

• an overall increase in prices.

• the amount of money earned by investing.

• how quickly your money can double

• the level of risk associated with equity investing.

If you are planning to put aside money for long-term goals, your BEST option is probably

• keeping your money in a jar by the bed because banks are not safe.

• putting your money in a savings account because it is insured.

• putting your money into a mutual fund because it is diversified.

• buying stock only in the company where you work.

Default risk is

• the potential that you will not get your money back once it is invested.

• fear that inflation will grow faster than the interest you earn.

• fear that you cannot earn enough money to meet your goals.

• the potential that you will quit saving.

Stocks and bonds are similar in that both

• have a guaranteed rate of return.

• provide ownership in a business

• have relatively high levels of risk.

• are tied to the rate of inflation.

Compound interest is calculated as

• principal plus any interest they have already paid you.

• principal minus the amount you are paid annually.

• principal but not on the interest earned.

• prorated interest over the life of an investment.

Low interest rates

• are paid on high risk investments.

• are paid on small investments.

• increase the amount of time needed to double your money.

• decrease the amount of time needed to double your money.

Which of the following statements is FALSE?

• Low interest rates decrease the incentive to save.

• A savings account is best for meeting short-term goals.

• It is better to wait until interest rates are high to start saving.

• Investing tends to have a higher risk than savings, resulting in potentially higher rates of return.

When saving or investing, the principal is the

• owner of the account

• primary investor in the account.

• original amount of money deposited for investing

• amount of money paid out of the earnings.

Liquidity is defined as

• how easy it is to turn an item into cash without losing any money

• how easy it is to lose money when you invest in a risky business.

• the ability of savings to earn interest.

• the potential loss from rising prices.