Investing Test Review

The initial money placed in an investment is known as the ______

• interest

• principal

• liquidity

• risk

The money periodically added to the balance is called the _____

• Interest

• Principal

• Liquidity

• Risk

______ is the most basic type of return on your savings or investment. The amount earned is based only on the principal (I=PRT)

• Rate of Return

• Rule of 72

• Simple Interest

• Compound Interest

______ allows your interest to be reinvested year after year. This is the most common type of return on your savings or investment

• Rate of Return

• Rule of 72

• Simple Interest

• Compound Interest

What does the equation I=PRT mean?

• interest=profit x rate x time

• interest= principal x rate x tax

• interest= profit x risk x time

• interest= principal x rate x time

Calculate simple interest on a $20,000 investment at 6% over 15 years

• $1,800

• $18,000

• $180,000

• $1,800,000

In calculating compound interest on $3,000 at 7% over 3 years, the interest gained in the 2nd year would be how much?

• $63.47

• $224.70

• $647.40

• $22,470.74

What do the X-axis and the Y-axis represent?

• X= year; Y= $ amount

• X= year; Y= principal

• X= interest; Y= $ amount

• X= interest; Y=principal

Over 20 years invested at 10%, why does compound interest gain more than simple interest?

• Compound interest uses the rule of 72 each year, decreasing total returns annually.

• Compound interest uses the rule of 72 each year, increasing total returns annually.

• Compound interest is re-invested annually, thus decreasing the principal each year

• Compound interest is re-invested annually, thus increasing the principal each year

The Rule of 72 can help you determine what?

• how much principal you need to double your interest

• how long it will take for your investment to double

• how long it will take your interest to double

• how much interest is gained by the time your money doubles