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Unit 3 Practice TEST - Saving, Investing, & Retirement Planning

Total questions: 59

Worksheet time: 32mins

Name
Class
Date
1.

Vocabulary - Select the correct term.

Purchasing securities such as stocks, bonds, and mutual funds with the goal of increasing wealth over time, but with risk of loss.

a)

Saving

b)

Investing

c)

Liquidity

d)

Risk

e)

Opportunity Cost

2.

Vocabulary - Select the correct term.

The quality of an asset that permits it to be converted quickly into cash without loss of value.

a)

Saving

b)

Investing

c)

Liquidity

d)

Risk

e)

Opportunity Cost

3.

Vocabulary - Select the correct term.

The value of the 2nd best alternative that a person gives up when making one choice instead of another.

a)

Saving

b)

Investing

c)

Liquidity

d)

Risk

e)

Opportunity Cost

4.

Vocabulary - Select the correct term.

A measure of the likelihood of loss or profit on a investment's rate of return.

a)

Saving

b)

Investing

c)

Liquidity

d)

Risk

e)

Opportunity Cost

5.

Vocabulary - Select the correct term.

The process of setting income aside for future spending.

a)

Saving

b)

Investing

c)

Liquidity

d)

Risk

e)

Opportunity Cost

6.

True or False.

A checking account at your bank is an example of an asset that is highly liquid.

a)

True

b)

False

7.

What does "Pay Yourself First" mean?

a)

Have a certain percentage of your money directly deposited into a savings account before any spending occurs.

b)

Just go buy whatever you want before paying bills.

c)

Demand that the boss pays you before anybody else.

d)

Take all the extra money before your spouse can get it.

8.

Why is it important to "Pay Yourself First"? Read all the options before selecting.

a)

Having cash flow on hand in case you need it for an emergency.

b)

To be able to use the money for certain needs and wants without having to use a credit card or apply for a loan.

c)

Both of these are correct.

d)

None of these are correct.

9.

The primary distinction between saving and investing is . . .

a)

Saving = little to no risk / lower reward potential

Investing = higher risk / higher reward potential

b)

Saving = higher risk / higher reward potential

Investing = little to no risk / lower reward potential

c)

Saving = little to no risk / higher reward potential

Investing = higher risk / lower reward potential

d)

Saving = higher risk / lower reward potential

Investing = lower risk / higher reward potential

10.

What is the "Rule of 72"?

a)

The average person's life expectancy.

b)

The estimated amount of time it takes for an investment to double by dividing 72 by the interest rate.

c)

Any time your principal investment amount is $72.

d)

Just a fancy terminology founded in 1972 which illustrates the power of simple interest.

11.

Which type of interest yields the highest return on your investment?

a)

Simple Interest

b)

Compound Interest

c)

Complex Interest

d)

It doesn't matter. They are all the same.

12.

The amount of money you initially put into a savings account or other investment is called what?

a)

Principle

b)

Balance

c)

Interest Rate

d)

Credit Score

13.

Using the rule of 72, about how long would it take your $4,000 investment to double with an interest rate of 8%?

a)

8 years

b)

9 years

c)

50 years

d)

55.6 years

14.

Using the rule of 72, about how long would it take your $100,000 investment to double with an interest rate of 7.5%?

a)

9.6 years

b)

10.4 years

c)

13.3 years

d)

7.5 years

15.

The formula for simple interest is . . .

a)

A = P(1 + rt)

b)

A = P(1+rn)ntA\ =\ P\left(1+\frac{r}{n}\right)^{nt}

c)

A = P(1 + r)

d)

A = P(1 - rt)

16.

The formula for compound interest is . . .

a)

A = P(1 + rt)

b)

A = P(1+rn)ntA\ =\ P\left(1+\frac{r}{n}\right)^{nt}

c)

A = P(1 + r)

d)

A = P(1−rn)ntA\ =\ P\left(1-\frac{r}{n}\right)^{nt}

17.

Look this one up. Whose quote is this? “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”

a)

Albert Einstein

b)

Elon Musk

c)

Bill Gates

d)

Warren Buffet

18.

Using the simple interest formula, calculate the return on investment if your principle amount was $5000, you are getting 12% interest, and you take your money out after 40 years.

a)

$29,000

b)

$24,000

c)

$2,405,000

d)

$465,255

e)

$16,667

19.

Using the compound interest formula, calculate the return on investment if your principle amount was $5000, you are getting 12% interest which is compounded quarterly, and you take your money out after 40 years. Round to the nearest whole dollar amount.

a)

$29,000

b)

$566,143

c)

$101,000

d)

$465,255

e)

$553,313

20.

Using the compound interest formula, calculate the return on investment if your principle amount was $5000, you are getting 12% interest which is compounded quarterly, and you take your money out after just 20 years. Round to the nearest whole dollar amount.

a)

$53,204

b)

$115,249

c)

$17,000

d)

$12,000

e)

$30,000

21.

Why does compound interest have so much power?

a)

Because that famous guy in the quote said so.

b)

Because interest is being paid not only on the principle, but the principle plus the previous interest already paid.

c)

It doesn't. Simple interest yields a higher return.

22.

Vocabulary - Select the correct term.

A certificate issued by a bank to a person depositing money in an account for a specified period of time (often 6 months, 1 year, or 2 years); a penalty is charged for early withdrawal.

a)

Certificates of Deposit (CD)

b)

Corporate Bonds

c)

Mutual Funds

d)

Savings Accounts

e)

Stocks

23.

Vocabulary - Select the correct term.

A certificate representing the purchaser's agreement to lend money to a business on the promise that the debt will be paid, with interest, at a specific time.

a)

Certificates of Deposit (CD)

b)

Corporate Bonds

c)

Mutual Funds

d)

Savings Accounts

e)

Stocks

24.

Vocabulary - Select the correct term.

An investment tool that pools the money of many shareholders and invests it in a diversified portfolio of securities, such as stocks, bonds, and money market accounts.

a)

Certificates of Deposit (CD)

b)

Corporate Bonds

c)

Mutual Funds

d)

Savings Accounts

e)

Stocks

25.

Vocabulary - Select the correct term.

A document representing a loan of more than one year to the U.S. government, to be re-paid with interest on a specified date.

a)

Certificates of Deposit (CD)

b)

Corporate Bonds

c)

Mutual Funds

d)

Savings Bonds

e)

Stocks

26.

Vocabulary - Select the correct term.

An investment that represents shares of ownership of the assets and earnings of a corporation.

a)

Certificates of Deposit (CD)

b)

Corporate Bonds

c)

Mutual Funds

d)

Savings Bonds

e)

Stocks

27.

The type of investment that we've been focusing on the most and doing a competition using investopedia.com.

a)

Stocks

b)

Bonds

c)

Money Markets

d)

CD's

28.

In the real world, before doing any type of investing, it is smart to do what? Read all the choices before selecting your answer.

a)

Pay off all high interest debts first.

b)

Pay yourself first by depositing 5-10% of your income into a savings account.

c)

Learn how to budget and manage your money.

d)

ALL of these are wise to do before doing any form of investing that involves risk.

29.

In the context of our Investopedia stock market simulator game, what is a portfolio?

a)

The collection of all your shares of stocks in various corporations.

b)

Kind of like a folder containing all your important financial information.

c)

Your account value.

30.

In the context of our Investopedia stock market simulator game, what is mean to diversify your portfolio?

a)

It means to spread out your risk by investing in many companies in various market sectors. If one market sector suffers, hopefully the rest will balance that out to minimize your loss.

b)

Invest as much as you can into 1 company. "Put all your eggs in 1 basket."

c)

It's like building your Resume.

31.

We started the stock market simulator game in January and have to end it by the end of the school year. This class competition experience is an example of:

a)

Long Term Investing

b)

Short Term Investing

c)

Neither of these.

32.

Mutual funds strive to diversify one's portfolio in many different investment types and market sectors. This is a more ___________ approach and is considered _______ risk.

a)

Conservative Approach / Low Risk

b)

Aggressive Approach / High Risk

c)

Conservative Approach / High Risk

d)

Agressive Approach / Low Risk

33.

True of False.

The stock market can be risky but also has the potential for high returns.

a)

True

b)

False

34.

One's comfort zone on how much risk to take on investments.

a)

Risk Tolerance

b)

Inflation

c)

Diversification

d)

None of these.

35.

A rise in the general or average price level of all goods and services produced in an economy. Which one am I looking for? We have seen a lot of this in recent times.

a)

Inflation

b)

Deflation

c)

Corporate Greed

d)

Supply vs. Demand

36.

Vocabulary - Choose the correct term.

A strategy designed to reduce potential risk by combining a variety of saving and investment tools.

a)

Diversification

b)

Financial Risk

c)

Fraud Risk

d)

Inflation Risk

e)

Market Risk

37.

Vocabulary - Choose the correct term.

The chance that an individual, business, or government will not be able to return money invested.

a)

Diversification

b)

Financial Risk

c)

Fraud Risk

d)

Inflation Risk

e)

Market Risk

38.

Vocabulary - Choose the correct term.

The chance that an investment has been misrepresented and/or people are trying to dishonestly take advantage of others.

a)

Diversification

b)

Financial Risk

c)

Fraud Risk

d)

Inflation Risk

e)

Market Risk

39.

Vocabulary - Choose the correct term.

The chance that the rate of inflation will exceed the rate of return on an investment.

a)

Diversification

b)

Financial Risk

c)

Fraud Risk

d)

Inflation Risk

e)

Market Risk

40.

Vocabulary - Choose the correct term.

The chance that the value of an investment will go down because of a change in supply and demand.

a)

Diversification

b)

Financial Risk

c)

Fraud Risk

d)

Inflation Risk

e)

Market Risk

41.

What kind of risk is the following an example of?

I get a 9.5% return on a stock over 10 years but the inflation rate over that time period has increased by nearly 12%. Your money at the end of the 10 years would seem like more but it would be worth less.

a)

Financial Risk

b)

Market Risk

c)

Inflation Risk

d)

Fraud Risk

42.

A contract between an individual and an insurance company where the individual makes a series of payments that are invested by the company and re-paid to the individual at a later date, generally during retirement.

a)

Annuity

b)

401(K)

c)

Defined Benefit Plan

d)

Defined Contribution Plan

e)

Individual Retirement Account (IRA)

43.

A retirement plan that allows employees in private companies to make contributions of pre-tax dollars to a company pool that is then invested in stocks, bonds, or money market accounts.

a)

Annuity

b)

401(K)

c)

Defined Benefit Plan

d)

Defined Contribution Plan

e)

Individual Retirement Account (IRA)

44.

A company retirement plan where the retirement payments are based on earnings invested from regular contributions from the employer and employee.

a)

Annuity

b)

401(K)

c)

Defined Benefit Plan

d)

Defined Contribution Plan

e)

Individual Retirement Account (IRA)

45.

A company retirement plan where the retirement payments are based on the length of service to the company and the salary earned at the time of retirement.

a)

Annuity

b)

401(K)

c)

Defined Benefit Plan

d)

Defined Contribution Plan

e)

Individual Retirement Account (IRA)

46.

An account in which an individual may set aside earned income in a tax-deferred savings plan for his or her retirement.

a)

Annuity

b)

401(K)

c)

Defined Benefit Plan

d)

Defined Contribution Plan

e)

Individual Retirement Account (IRA)

47.

A federal program that requires employers and workers to make regular payments to a government fund which is used to make payments to people who have reached a certain age or are unable to work because they are disabled.

a)

Annuity

b)

401(K)

c)

Defined Benefit Plan

d)

Social Security

e)

Individual Retirement Account (IRA)

48.

What is the primary difference between a Traditional IRA and a Roth IRA?

a)

Traditional IRA = No taxes up front, taxed later during retirement.

Roth IRA = Taxed up front and then grows tax free. Not taxed later during retirement.

b)

Traditional IRA = Taxed up front and then grows tax free. Not taxed later during retirement.

Roth IRA = No taxes up front, taxed later during retirement.

c)

There's no difference.

49.

Which of the following statements is true?

a)

Life expectancy is based on how much money a person earns.

b)

Most people who retire live in nursing homes.

c)

Life expectancy today is continuing to increase.

d)

Older people rarely work after they retire.

50.

If someone is not saving enough for retirement, which of the following actions should they consider?

a)

Postpone retirement to a later date.

b)

Rethink retirement goals.

c)

Save a larger amount of money each year.

d)

All of these options should be considered.

51.

Which of the following could reduce your retirement income?

a)

You inherit money you had not anticipated.

b)

You start investing for retirement while you are young.

c)

You wait until later in life to start investing for retirement.

d)

You decide to work after you retire.

52.

Who were you rooting for in this year's Super Bowl?

a)

Kansas City Chiefs

b)

Philadelphia Eagles

c)

I didn't care. Just in it for the commercials.

d)

What's a Super Bowl?

53.

Do you know the capitol of Alaska?

a)

Anchorage

b)

Fairbanks

c)

North Pole

d)

I don't know. Juneau?

54.

What stock do you own or have you owned in our Investopedia competition that has yielded the highest return for you?

4 lines
55.

True of False.

The main thing to remember about retirement planning is to put off saving for it as long as possible. If you don't plan on retiring until age 60, then a good time to start planning for it is around age 55. Procrastination never fails.

a)

True

b)

False

56.

What was your risk tolerance when we took the risk tolerance quiz?

a)

Conservative Risk Taker

b)

Moderate Risk Taker

c)

Aggressive Risk Taker

57.

What were the names of our Guest Speakers from 836 Investments?

a)

Russ and Cheryl

b)

Ross and Charlene

c)

Rick and Sherry

d)

Bob Ross and Betty White

58.

True or False.

On our 836 Investments Guest Speaker day, their main point was to start saving as early as possible. As soon as you get your first job, start putting as much as possible into a savings account.

a)

True

b)

False

59.

Using the following scale from 1-5, how much are you enjoying our Investopedia Stock Market Challenge? 1 = not very much, 5 = you love it!

a)

1

b)

2

c)

3

d)

4

e)

5

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