Personal Finance Final Review

How is a bond different from a stock?

• Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations

• A bond is a loan you give to an organization while a stock is partial ownership in a company

• Bonds are typically riskier than stocks but have the potential to earn higher returns

• Bonds are best for earning high returns while stocks are best for providing a stable source of income

Over time, the stock market has…

• Gone through severe ups and downs with an overall decrease in value

• Had slight ups and downs but stayed about the same in value

• Rarely experienced changes and has maintained the exact same value

• Experienced highs and lows but increased in overall value

How does investing in the stock market differ from putting money in a savings account at a bank?

• Investing is best for short-term situations like emergency funds; saving is best for the long-term

• Investing is always a less risky option than saving

• Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies

• Investing typically earns between 1-2% while saving generally earns between 5-7%

Why is this likely a bad investment strategy to invest all your money in individual stocks?

• Purchasing individual stocks has a high amount of risk and little diversification.

• You will need a large amount of money to invest in individual stocks.

• You will need to open multiple brokerage accounts for each stock you purchases.

• Purchasing individual stocks has a very low amount of risk and a low return.

What are the advantages of investing in a mutual fund, rather than an individual stock?

• A mutual fund has a target date to be sold, so you can pay less attention to changes in the market

• A mutual fund always pays out higher dividends than an individual stock

• A mutual fund is actively managed, resulting in lower overall fees

• A mutual fund is diversified, so your investment is lower risk

Which of the following statements is TRUE about compound interest?

• Compound interest means you have a fund manager who is compounding your returns without charging a fee

• Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts

• Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned

• Compound interest directly impacts how much you will be charged in fees

  A 401(k) plan is a... 

• bank account specifically for entrepreneurs

• special type of business plan

• benefit that helps workers invest for retirement

• benefit for workers making $401,000 or less

What is a key difference between saving and investing?

• Saving earns compound interest while investing earns simple interest

• Saving guarantees you the money you put away while investing has no guarantees.

• Saving is for long-term goals; investing is for short-term goals

• Saving earns a much higher rate of return than investing your money

When loans are amortized, monthly payments are _______ , while the interest portion of the monthly payment ________  and the principal portion of the monthly payment _______  over time.

• Constant, Increases, Increases

• Constant, Decreases, Increases

• Variable, Decreases, Increases

• Variable, Decreases, Decreases

Which of the following is true about fixed and adjustable-rate mortgages?

• Fixed-rate mortgages have a constant payment every month, but an interest rate that increases during the term of the loan

• They work the same way but are called different names depending if they come from a bank or a credit union

• Fixed-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner

• Adjustable-rate mortgages have a fixed interest rate for a short period, but then the interest rate fluctuates, which can lead to higher or lower interest rates for the homeowner