PF Unit 5 Quiz: Lessons 1-4

You have $100 today. Inflation is expected to be 3% over this next year. Select all statements that accurately describe the implications of this.

• Next year, that $100 will only be worth what $97 is worth today.

• Last year, that $100 would've been worth $103.

• Next year, things will be about 3% more expensive than they are now.

• If that $100 is invested into a 12-month CD that earns 3% annual interest, the purchasing power will be preserved over the next year.

• That $100 will inflate 3% over the next year and be worth what $103 is worth today.

In addition to the price of goods and services, what else is impacted by inflation? (choose all correct answers)

• Wages

• Savings

• Debts

• Interest Rates

Investing is important because it helps you beat inflation, not only preserving your purchasing, but increasing your purchasing power over the long-run. Given this idea, why would anyone choose to put some money into a savings account that earns very little interest and will not beat the rate of inflation over the long-run?

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Let's say you invested some money into the stock market and it grew exponentially over 30 years due to the compounding effect. Select all statements that you know must be true.

• The investment grew the same amount in the first 15 years as it did in the last 15 years.

• The investment grew more in the first 15 years than in the last 15 years.

• The investment grew more in the last 15 years than in the first 15 years.

• The amount of money in the investment account had growth that accelerated over time.

• The amount of money in the investment account grew at a steady, constant rate over the whole 30 years.

3. This graph represents someone with an investment of $10,000 with 7% returns compounding each year for 30 years.
   
   Approximately how much does this investment grow in the first 10 years?

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What is the advantage of starting to invest early?

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Sandra has $500 in a money market account that earns 2.5% annual interest. She leaves that money in the account for 5 years. If inflation averaged 2% per year, what happened to the purchasing power of her savings?

• It increased

• It decreased

• It stayed the same

• It matched inflation

The graph shows how the $500 investment of 2 different people grows over 30 years time. The blue line represents Mikal's investment. The red line represents Lucas's investment.

Select all statements that best reflect this situation.

• Lucas's investment grew faster than Mikal's over 30 years.

• Over 30 years, both Mikal's and Lucas's investments grew at the same rate on average

• Lucas's investment grew more slowly than Mikal's at first, but then caught up by year 30.

• If we continued to watch these investments grow for just an additional 5 years, Lucas would have significantly more money than Mikal's.

• If Mikal had started with more more money than Lucas, Lucas's investment would never catch up.

The table shows how an investment account grows over 4 years. Given that this is exponential growth, what is the growth factor?