Economics Unit 3 test Study Guide Part 2

Simple Interest: Interest is calculated...

• using the formula: Interest = Principal + Rate + Time
• using the formula: Interest = Principal / Rate x Time
• on principle and on interest

• using the formula: Interest = Principal x Rate x Time x 2

What is an appropriate savings goal? (At Least 10%)

• Save more than 10% of your income sporadically.
• Pay Yourself First

• Save exactly 10% of your income occasionally.
• Save less than 10% of your income irregularly.

What is an appropriate amount of financial security?

• Having no savings or investments and relying solely on debt
• Spending all income without saving for emergencies or future goals
• Investing in high-risk ventures without diversification
• Emergency Fund

Rule of 72:

• - What is it: How long will it take to double an investment

  - How does it work: 72/interest rate = time in years

  - Example: 72/6 (rate of interest) = 12

  Don't use percentage here: just simple numbers

• - Multiply 72 by the annual rate of return to estimate the number of years it will take for an investment to double.

  - Add 72 to the annual rate of return to estimate the number of years it will take for an investment to double.

  - Subtract 72 from the annual rate of return to estimate the number of years it will take for an investment to double.

Emergency Fund: What is an appropriate amount of financial security:

• - Hundred back

  - 1000 - 1500 cash you can get to within a few hours

  - 3 - 12 months worth of expenses (Bills & Essentials)

• - 3 to 6 months' worth of living expenses

  - 12 to 18 months' worth of living expenses

  - 6 to 9 months' worth of living expenses

What is an appropriate savings goal?

• 1 week of living expenses
• 10 to 12 months' worth of living expenses
• No savings needed
• (At Least) 10%

What is the purpose of a passive investment stream?

• To rely solely on luck for investment success.
• To Increase Wealth

• To require constant monitoring for optimal performance.
• To actively trade securities for short-term gains.