Wise Interest Cost of Money Review

What is the main difference between simple interest and compound interest?

• Simple interest grows faster than compound interest

• Compound interest earns interest on both the principal and previously earned interest

• Simple interest is better for saving money

• Compound interest is only used for loans

If a loan has an APR of 12%, what does this mean?

• You pay 12% of the loan amount every month

• The loan has a total of 12 payments

• The yearly cost of borrowing the loan is 12% of the loan amount

• The interest rate changes every 12 months

Which statement best describes the Rule of 72?

• A rule for calculating monthly payments on a loan

• A way to determine how long it takes to double your money based on the interest rate

• A government rule for setting interest rates

• A method for calculating credit scores

What is inflation?

• The decrease in the cost of goods over time

• The rise in prices, making money less valuable over time

• The process of saving money for the future

• The increase in bank interest rates

What does liquidity refer to in financial terms?

• The ability to borrow money easily

• The amount of money someone has in their savings account

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

• The total interest earned on an investment

Which of the following accounts is the most liquid?

• A house

• A savings account

• A retirement fund

• A certificate of deposit (CD) with a 5-year term

Which of the following is an example of opportunity cost?

• Buying a car and later selling it for profit

• Spending $50 on a concert instead of saving it

• Earning compound interest on a savings account

• Taking out a loan with a low interest rate

What is a fixed-rate loan?

• A loan where the interest rate can change over time

• A loan where the interest rate stays the same for the entire loan term

• A loan that does not charge interest

• A loan that must be paid off in full every month

Which law requires lenders to clearly explain the terms of a loan, including the APR?

• The Truth in Lending Act (TILA)
  

• The Rule of 72

• The Inflation Protection Act

• • The Banking Transparency Act

What happens if a borrower misses multiple loan payments?

• Their credit score may decrease

• They will earn more interest on their savings

• Their debt-to-income ratio will decrease

• They will automatically qualify for another loan