WorksheetsPersonal Finance 5.00 Saving and Investing
Total questions: 22
Worksheet time: 44mins
Compound interest is best defined as:
interest earned on the principal
investment.
any form of interest earned from saving or investing.
earning interest on interest
the effect interest has on the total return on investment.
Which statement best reflects the philosophy of “pay yourself first”?
An individual should save whatever money is left over after paying monthly bills.
An individual should pay all fixed expenses before paying flexible expenses.
An individual should set aside a predetermined amount of money for saving before using any of that money for spending.
An individual should spend money on the items and activities enjoyed in life before paying any other expenses.
David's Personal Finance class has been discussing the importance of understanding liquidity and he is trying to explain the term to another student. Which statement is the most correct description of liquidity?
How quickly and easily an asset can be converted into cash
The amount of savings available
A measurement of how much a person or household owns once all debts have been paid
The amount of money needed to pay for the necessities and comforts currently enjoyed
Dylan is preparing a presentation about saving and the presentation rubric says that he must include an explanation of compounding interest. Which concept would be the best one to include in his presentation to show that he understands compounding interest?
Interest earned on the principal investment
Any form of interest earned from saving or investing
Earning interest on interest
The effect interest has on the total return on investment
When a goal has been set to save $100.00 a month for an emergency fund of $2,000.00, giving up food from the vending machine to achieve that goal is the:
opportunity cost
interest
specific part of the SMART goal
trade-off
When taking advantage of the time value of money, which is most likely to result in the largest return?
Invest a large principal amount of money and then make no additional investments.
Invest as long as possible and at the highest interest rate possible.
Invest a small amount of money for a short period of time at the highest interest rate possible.
Invest at a high interest rate because interest is the only factor that affects return.
Brett plans to save money toward purchasing a car. His coworker is telling him about a money market account he has that offers a tiered interest rate. What is Brett’s coworker talking about?
The amount of money he earns depends on the balance, i.e. the higher the account balance the higher the interest rate he would earn.
The amount of money he earns depends on the number of accounts he has at the depository institution, i.e. the more accounts he has, the higher interest rate he will earn.
Brett’s coworker is talking about something that is illegal. A tiered account is promoted by scam artists who trick people into investing money in hopes of earning higher rates over time
The rate of interest earned increases over time, i.e. leaving money in the account for 3 months would earn a lower interest rate than leaving money in the account for 12 months.
In relation to other options, how liquid is a savings account?
More liquid than cash
Less liquid than mutual funds
More liquid than a certificate of deposit
More liquid than a checking account
Linda needs a savings tool to help her manage her everyday purchases. The savings tool needs to be very liquid and accessible. Which savings tool should Linda choose?
Certificate of deposit
Checking account
Money market deposit account
Any of the above savings tools
Which correctly describes the security level of savings tools?
Savings tools are not secure because they have a high risk of losing money.
Savings tools are secure because they are protected by the U.S. government against loss.
Savings tools are very secure because there are not risks involved with saving or investing.
None of the above is true. It would be safer to keep the money at home in a shoe box.
Which is a feature of a certificate of deposit (CD) ?
Funds deposited in a CD are held for a certain length of time.
Funds deposited in a CD have tiered interest rates.
Funds deposited in a CD are very liquid.
Funds deposited in a CD can be accessed via check or debit card.
Which is a feature of a money market deposit account?
No minimum balance requirements
Unlimited transactions every month
Tiered interest rates
The money must remain in the account for a specific period of time
Which statement is true of mutual funds?
Mutual funds are speculative investments
Mutual funds are diversified investments
Mutual funds are a form of real estate investment
Mutual funds are superior purchasing to a single stock
The most common relationship between risk and return in investing can be stated as:
higher risk indicates lower return
higher risk indicates higher return
lower risk indicates higher return
no relationship exists between risk and return
Sara is looking for an investment that is structured to have tax benefits. She should look for information on:
tax-rated bonds
speculative investments
index funds
tax-advantaged investments
Which statement is true with regard to paying taxes on investments?
Since investments are considered unearned income, taxes do not have to be paid on earnings.
Taxes are often owed on profits generated from investments.
Taxes only have to be paid on employer-sponsored investment accounts.
Taxes are always paid on investments either when the money is placed in the investment or removed from the investment.
Which is not true with regard to investing in stock?
A stockholder owns a part of a company.
Depending upon the current market price, stockholders may pay different prices for the same stock.
A stockholder may or may not receive a dividend.
A stockholder will always receive a profit when the stock is sold.
In relation to the rate of inflation, it is best to have the rate of return on an investment:
lower, in order to minimize taxes.
lower, in order to minimize risk
higher, to maintain purchasing power.
higher, to minimize risk.
A bond is:
a type of debt that a company issues to investors for a specified period of time.
a share of ownership in a company.
a type of investment that is only offered by depository institutions.
a type of investment that has the potential for significant fluctuations over a short period of time.
Stephen is concerned about the effects of inflation on his investment returns. Which statement best describes inflation?
The rise in the general level of prices
The uncertainty about the return on an investment
The number of times something happens to money
The projected value of an investment at the end of a specified time frame
Mark's stock broker is suggesting that he consider investing in a diversified portfolio. A diversified portfolio is desirable because it:
increases the risk/return ratio.
limits investor choices to only one or two investment tools.
indicates an investor is a good predictor of the return an investment will have.
decreases risk by investing money in a variety of investment tools.
Jackson wants to purchase stocks with the money he received from his tax return. Who would he contact to make the transaction?
A brokerage firm
The New York Stock Exchange
A real estate agent
Jackson should complete this transaction on his own.
