Personal Financial Literacy - Final Exam Review 2

Scarlett has received a bonus from her job and is considering whether she should put it into a savings account or invest it. Which is the best way to explain the difference to her?

• Saving is not spending money while investing is making your money grow.

• Saving is making your money grow while investing is not spending your money.

• Saving is used for retirement while investing is used for short-term goals.

• There is no difference between saving and investing.

Emma is considering various reasons to invest her money. Which of the following is NOT a reason she should consider?

• Diversify your income

• Save for retirement

• Achieve your financial goals

• To keep your money safe from theft

Olivia has saved some money in her bank account. Which of the following statements is TRUE about the compound interest she earns on her savings?

• Compound interest is difficult to calculate, so Olivia will earn higher profits for her efforts.

• Compound interest means Olivia has a fund manager who is compounding her returns without charging a fee.

• Compound interest allows Olivia to earn interest not only on the amount she has saved, but also on the interest she's already earned.

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

Anika is considering investing in different assets. Which of the statements below BEST describes the relationship between risk and return for her investments?

• A. Anika expects to earn a lower return when she invests in a high risk asset

• B. Anika expects to earn a higher return when she invests in a low risk asset

• C. Anika expects to earn a higher return when she invests in a high risk asset

• D. Anika expects to earn zero return when investing in a low risk asset

Gerard is considering different investment options for her savings. Which of the following investments presents the highest risk?

• Bonds

• Savings accounts

• Certificates of deposit

• Stocks

Harold is planning her retirement and wonders why he will need slightly more income in each year of his retirement.

• Your expenses increase the longer you are in retirement.

• Your rate of return on investments is guaranteed to increase in retirement, so you can spend more each year.

• You are required to withdraw more money each year from your retirement account

• You should take the increasing price of goods and services over time into account.

Noah is considering different investment options. Which of the following investments offers a higher interest rate than a savings account but has a large penalty for early withdrawal?

• Mutual funds

• Real estate

• Stocks

• Certificates of deposit

Avery is planning for retirement and wants to understand how Social Security works. Which statement best describes what Social Security is and how it works?

• Social Security is a mandatory program that requires the government to give money to everyone when they retire.

• Social Security is an optional program to allow retirees to continue contributing to their individual retirement accounts.

• Social Security is a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible.

• Social Security is a federal health insurance program for retired workers.

Mason is planning for his retirement and is curious about what most Americans receive when they retire after age 67. Which of the following is it?

• Mutual funds

• CDs

• Social Security

• Stocks

Aria is considering how to invest her savings. Why is diversification a recommended investment strategy for her?

• Investing in a diversified portfolio guarantees that you won’t lose money with your investments.

• If you tell your fund manager to use diversification, they’ll charge you lower fees.

• Diversifying your portfolio helps reduce risk because your money is spread around to different investments.

• If you diversify your portfolio, you will definitely earn a high return.