Personal Finance - Final Exam (50 Points)

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

• Investing is always a less risky option than saving

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

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

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

Which of the following statements is TRUE about compound interest?

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

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

• 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

What kinds of behaviors can PREVENT people from making smart investing decisions?

• Staying calm when the market is experiencing a downturn

• Buying stocks when prices are low and selling them when they're high

• Exiting the market because that’s what everyone else is doing

• Investing in a diversified portfolio instead of trying to beat the market

The upside to having a high deductible is:

• Lower insurance premium.

• Higher insurance premium.

• You are less likely to get in an accident.

• You will have more insurance coverage.

If you buy a $1000 bicycle, which credit card payoff strategy will result in your paying the LEAST total amount?

• Pay the minimum monthly payment

• Pay $100 per month for 10 months

• Pay $250 per month until it’s paid off

• Don’t make any payments until you have the full $1000 saved, regardless of how long that takes

Ralph has a shiny new car, and he wants to make sure the insurance company will help him fix or replace it in case of any type of damage. Each of these coverage areas will provide the type of coverage he’s looking for on his car EXCEPT…

• Uninsured/underinsured motorist

• Collision

• Comprehensive

• Liability

When do you receive your FAFSA Submission Summary?

• 1-2 weeks after submission

• 1-3 business days after submission

• 1 month after submission

• Immediately after submission.

Which of the statements below BEST describes the relationship between risk and return when considering an investment?

• Investors expect to earn a lower return when they invest in a high risk asset

• Investors expect to earn a higher return when they invest in a low risk asset

• Investors expect to earn a higher return when they invest in a high risk asset

• Investors expect to earn zero return when investing in a low risk asset

Why is diversification a recommended investment strategy?

• 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

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

Which of the following is a characteristic of dollar-cost averaging?

• Dollar-cost averaging is a way to decrease your risk

• Dollar-cost averaging is a strategy that only expert investors use

• Dollar-cost averaging is advantageous because earnings are untaxed

• Dollar-cost averaging is offered exclusively through robo-advisors