PF 5.01-5.03 Objective Test Review

Dylan is preparing a presentation about saving and the presentation rubric says that he must include an explanation of compounding interest. Which of the following statements 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 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 $2000.00, giving up food from the vending machine to achieve that goal is the:

• opportunity cost

• interest

• specific part of the SMART goal

• trade-off

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

When taking advantage of the time value of money, which of the following 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.

Certificate of deposit (CD)

• an account at a depository institution that is used for a fixed period of time and allows restricted access to the funds deposited

• an account that allows quick access to funds for transactions

• businesses that provide financial services

• the amount of interest earned depends on the account balance

Checking account

• An account that allows quick access to funds for transactions

• Businesses that provide financial services

• The amount of interest earned depends on the account balance

• Accounts offered by depository institutions whose main purpose is to help people manage their money

Depository institution

• Businesses that provide financial services

• Accounts offered by depository institutions whose main purpose is to help people manage their money

• The amount of interest earned depends on the account balance

• An account that allows quick access to funds for transactions

Liquidity

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

• An account at a depository institution that is designed to hold money not spent on current consumption

• The amount of interest earned depends on the account balance

• An account that allows quick access to funds for transactions