MID-TERM REVIEW: Personal Finance: 5.01-5.03

1. When taking advantage of the time value of money, which is most likely

to result in the largest return?

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

  investments.

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

• C. Invest a small amount of money for a short period of time at the

  highest interest rate possible.

  .

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

  affects return

2. 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:

• A. opportunity cost.

• B. interest.

• C. specific part of the SMART goal.

• D. trade-off.

3. 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?

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

• B. The amount of savings available

• C. A measurement of how much a person or household owns once all

  debts have been paid

• D. The amount of money needed to pay for the necessities and comforts

  currently enjoyed

4. Compound interest is best defined as:

• A. interest earned on the principal investment.

• B. any form of interest earned from saving or investing.

• C. earning interest on interest.

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

5. 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?

• A. Interest earned on the principal investment

• B. Any form of interest earned from saving or investing

• C. Earning interest on interest

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

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

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

  monthly bills.

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

  expenses.

• C. An individual should set aside a predetermined amount of money for

  saving before using any of that money for spending.

• D. An individual should spend money on the items and activities enjoyed

  in life before paying any other expenses.

7. Hannah needs a savings tool to help her manage her everyday purchases.

The savings tool needs to be very liquid and accessible. Which savings

tool should Hannah choose?

• A. Certificate of deposit

• B. Checking account

• C. Money market deposit account

• D. Any of the above savings tools

8. Brett plans to save money toward purchasing a car. His coworker is telling

him about a money market account he has that offers a tiered interest

rate. What is Brett’s coworker talking about?

• A. The amount of money he earns depends on the balance, i.e. the

  higher the account balance the higher the interest rate he would earn.

• B. The amount of money he earns depends on the number of accounts

  he has at the depository institution, i.e. the more accounts he has,

  the higher interest rate he will earn.

• C. Brett’s coworker is talking about something that is illegal. A tiered

  account is promoted by scam artists who trick people into investing

  money in hopes of earning higher rates over time.

• D. The rate of interest earned increases over time, i.e. leaving money in

  the account for 3 months would earn a lower interest rate than

  leaving money in the account for 12 months.

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

• A. More liquid than cash

• B. Less liquid than mutual funds

• C. More liquid than a certificate of deposit

• D. More liquid than a checking account

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

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

• B. Funds deposited in a CD have tiered interest rates.

• C. Funds deposited in a CD are very liquid.

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