4A,4B,4C,4D
After twotwo years, an investment with interest compounded annually and an APR of 4.74.7% increases in value by which factor? Choose the correct answer below. The factor is 1.047 squared1.0472.
A
Choose the correct answer below. A. The single biggest category is entertainment. The average person spends 8% of his or her income on entertainment. B. The single biggest category is food. The average person uses 23%-43% of his or her income on food. C. The single biggest category is housing. The average person uses 33% of his or her income on housing. Your answer is correct. D. The single biggest category is entertainment. The average person has not yet considered finding lower-cost entertainment options. E. The single biggest category is housing. The average person uses 23% of his or her income on housing. F. The single biggest category is food. The average person uses 46%-66% of his or her income on food.
C
Why is it so important to understand your personal finances? A. It is important to understand your personal finances because understanding your personal finances will prevent divorce and other difficulties in personal relationships. B. It is important to understand your personal finances because you need to know what your credit card interest is so that you can pay the balance off quicker. Once the balance is paid off, you can then invest in the stock market. C. It is important to understand your personal finances because there will be an exam at the end of the term. D. It is important to understand your personal finances because you need to know how much money you have and how much money you spend in order to find a way to live within your means.
D
In the savings plan formula, assuming all other variables are constant, what happens to the accumulated balance in the savings account? Choose the correct answer below. A. It decreases as Y increases. As the amount of years of saving increases, the accumulated savings decrease. B. It increases as APR decreases. As APR decreases, the amount of interest paid will be less. Therefore, more accumulated savings will be made. Your answer is not correct. C. It increases as n increases. If less payments are made per year, more money will be saved. D. It decreases as Y increases. As the exponent, n, in the numerator increases, Y must decrease to keep the formula true. E. It increases as APR decreases. As n increases, APR over n decreases causing the accumulated balance the increase. F. It increases as n increases. As n increases, the denominator decreases and the exponent in the numerator increases. This makes the accumulated balance increase.
F
You invest $2000 in an account that pays simple interest of 2% for 20 years.
2,800 0.02x2000=A Ax10=2,800
Define the variables in the compound interest formula for interest paid more than once a year. Choose the correct answer below. A. A is the accumulated balance after Y years, P is the starting principal, APR is the annual percentage rate (as a decimal), n is the number of compounding periods per year, and Y is the number of years. This is the correct answer. B. A is the accumulated balance after Y years, P is the starting principal, APR is the annual percentage rate (as a decimal), Y is the number of years, and e is a special irrational number with a value of ealmost equals≈2.71828. Your answer is not correct. C. A is the accumulated balance after Y years, P is the starting principal, APR is the annual percentage rate (as a decimal), and Y is the number of years.
A
Describe the four-step process of figuring out your monthly budget. Choose the correct answer below. A. First, list all your monthly income. Next, list all your monthly expenses. Then subtract your total expenses from your total income to determine your net monthly cash flow. Finally, make adjustments as needed. Your answer is correct.B. First, list all your monthly income. Next, list all your monthly expenses. Then add your total expenses to your total income to determine your net monthly cash flow. Finally, make adjustments as needed. C. First, list all your monthly income. Next, list all your monthly expenses. Then subtract your total income from your total expenses to determine your net monthly cash flow. Finally, make adjustments as needed. D. First, list all your monthly income. Next, list all your monthly credit card debt. Then subtract your total credit card debt from your total income to determine the amount of interest being paid each month. Finally, make adjustments as needed.
A
Emma and Emily are good friends who do everything together, spending the same amount on eating out, entertainment, and other leisure activities. Yet Emma has a negative monthly cash flow while Emily's is positive, because Emily has more income. Choose the correct answer below. A. The statement makes sense because even though Emma and Emily spend the same amount on entertainment expenses, they may spend different amounts on other expenses. Regardless of income, Emma's and Emily's cash flows could be positive or negative. This is the correct answer. B. This statement does not make sense because Emma uses a credit card for her expenses and Emily uses cash for her expenses. C. This statement does not make sense because Emily's rent could be lower than Emma's, which means that she will have a greater monthly cash flow. D. This statement makes sense because Emily makes more money than Emma, so she has a greater cash flow at the end of the month.
A
Explain the meaning and use of the loan payment formula. Choose the correct answer below. A. The loan payment formula is used to calculate equal monthly payments as the interest paid decreases and principal decreases. This is the correct answer. B. The loan payment formula is used to calculate equal monthly payments as the interest paid varies and principal increases. C. The loan payment formula is used to calculate annual payments as the interest paid decreases and principal decreases. Your answer is not correct. D. The loan payment formula is used to calculate annual payments as the interest paid varies and principal increases.
A
How can comparing your own spending to average spending patterns help you evaluate your budget? A. If you are spending a higher percentage of your money on an item in your budget than the average person, you might want to consider finding lower-cost options or adjusting your budget. Your answer is correct. B. If you are spending a higher percentage of your money on entertainment than the average person, you might be able to find cheaper ticket prices if you ask around. C. It can be useful to check how you compare to the rest of the population. If you notice that most people donate less than you do to charity, it might be time to stop giving away so much. D. It is a good idea to check how you compare to the rest of the population. If you find that people spend more than you on gas, you can give others advice on how to spend less.
A
My vacation travel cost a total of $1320, which I entered into my monthly budget as $55 per month. Choose the correct answer below. A. This statement does not make sense because the value entered into the monthly budget should be $ 110. Your answer is correct.B. This statement does not make sense because when making a monthly budget, expenses such as vacations should only be included for the month in which they are taken. C. This statement makes sense because when making a monthly budget comma a prorated amount for expenses that don't recur monthly comma such as vacations comma should be included. D. This statement does not make sense because when making a monthly budget, expenses such as vacations should be ignored since they are a small expense compared to other monthly expenses.
A
The interest rate on my student loan is only 7%, yet more than half of my payments are currently going toward interest rather than principal. Choose the correct answer below. A. The statement makes sense. The portions of installment loan payments going towards principal and toward interest vary as the loan is paid down. This is the correct answer. B. The statement does not make sense. Principal is always paid off entirely before any payments go toward interest. C. The statement makes sense. A much larger portion of every payment goes towards interest, regardless of the interest rate. Your answer is not correct. D. The statement does not make sense. For every payment, 7% goes towards interest and 93% goes towards principal.
A
What is a budget? A. A budget keeps track of how much money you have coming in and how much you have going out and helps to determine what adjustments need to be made. Your answer is correct. B. A budget keeps track of how much money you are spending on your credit cards and any interest you are being charged and helps to determine how much interest you can afford to pay. C. A budget is the value obtained from subtracting your monthly expenses from your monthly income. D. A budget is a list of your monthly income, including wages, bank interest, and any other income such as once-per-year payments.
A
What is the difference between simple interest and compound interest? Why do you end up with more money with compound interest? Choose the correct answer below. A. Simple interest is interest paid only on the original investment whereas compound interest is interest paid both on the original investment and on all interest that has been added to the original investment. Since compound interest is calculated based on a larger amount than simple interest, it results in a larger amount of money over time. This is the correct answer. B. Simple interest is interest paid at a fixed rate over time whereas compound interest fluctuates over time. Since the rates for compound interest are alwaysincreasing, it results in a larger amount of money over time compared to simple interest. Your answer is not correct. C. Simple interest is interest paid both on the original investment and on all interest that has been added to the original investment whereas compound interest is interest paid only on the original investment. Since compound interest is calculated based on a smaller amount, it results in a larger amount of money over time. D. Simple interest is interest paid only on 50% of the original investment whereas compound interest is interest paid only on 100% of the original investment. Since compound interest is calculated based on a larger amount than simple interest, it results in a larger amount of money over time.
A
What types of problems are more common among people who do not have their finances under control? A. People who do not have their finances under control suffer from financial stress, higher divorce rates, and other difficulties in personal relationships. They also suffer from higher rates of depression among a variety of other ailments. Your answer is correct. B. People who do not have their finances under control suffer from financial stress, and have less friends. They also suffer from higher interest rates. C. People who do not have their finances under control have higher marriage rates, and no difficulty in personal relationships. However, they tend to suffer from higher rates of depression among a variety of other ailments. D. People who do not have their finances under control suffer from financial stress because they usually have to pay an accountant to balance their checkbooks.
A
Why are credit card loans particularly dangerous? A. Credit card loans are particularly dangerous because they have very high interest rates compared to other types of loans, so it is easy to get into financial trouble. This is the correct answer. B. Credit card loans are particularly dangerous because they charge an annual fee, and often raise the interest rate. Your answer is not correct. C. Credit card loans are particularly dangerous because they don't require equal monthly payments, so many people never pay off their balance. D. Credit card loans are particularly dangerous because they can be used as identification to rent a car.
A
A single 40-year-old man with a monthly salary of $4000 spends $460 per month on health care. LOADING... Click the icon to view the figure. Is the man's spending pattern equal to, above, or below the national average? A. The spending pattern is below the national average. B. The spending pattern is above the national average. Your answer is correct.C. The spending pattern is equal to the national average.
B
A single 30-year-old woman with a monthly salary of $3000 spends $1020 per month on rent. LOADING... Click the icon to view the figure. Is the woman's spending pattern equal to, above, or below the national average? A. The spending pattern is above the national average. B. The spending pattern is equal to the national average. Your answer is correct.C. The spending pattern is below the national average.
B
Brandon discovered that his daily routine of buying a slice of pizza and a soda at lunch was costing him more than $1500 per year. Choose the correct answer below. A. This statement makes sense because this would mean that a slice of pizza and a soda costs him about $41 a day. B. This statement makes sense because this would mean that a slice of pizza and a soda costs him about $4 a day. Your answer is correct.C. This statement does not make sense because this would mean that a slice of pizza and a soda costs him about $4 a day. D. This statement does not make sense because this would mean that a slice of pizza and a soda costs him about $41 a day.
B
Consider two accounts earning compound interest, one with an APR of 66% and the other with an APR of 33%, both with the same initial deposit (and no further deposits or withdrawals). After twenty years, how much more interest will the account with APRequals=66% have earned than the account with APRequals=33%? Choose the correct answer below. A. Less than twice as much B. More than twice as much Your answer is correct. C. Exactly twice as much
B
Consider two investments, one earning simple interest and one earning compound interest. If both start with the same initial deposit (and you make no other deposits or withdrawals) and earn the same annual interest rate, how will the balance in the simple interest account compare to that of the compound interest? Choose the correct answer below. A. The account with simple interest will have a greater balance than the account with compound interest because compound interest is interest paid only on the original investment. B. The account with simple interest will have a smaller balance than the account with compound interest because compound interest is interest paid both on the original investment and on all interest that has been added to the original investment. Your answer is correct. C. The account with simple interest will have the same balance as the account with compound interest because the initial deposits are equal. D. The account with simple interest will have the same balance as the account with compound interest because the annual interest rates are equal. E. The account with simple interest will have a smaller balance than the account with compound interest because the more times interest is applied to aninvestment, the smaller the balance.
B
Explain why the term APR/n appears in the compound interest formula for interest paid n times a year. Choose the correct answer below. A. APR represents the annual principle rate. Since the APR is the total amount of interest earned in a year, it needs to be divided by the number of compounding periods per year comma n.year, n. B. APR represents the annual percentage rate (as a decimal). To account for the interest paid n times a year, this annual (yearly) rate needs to be divided by the number of compounding periods per year, n. This is the correct answer. C. APR represents the annual principle rate. The APR represents the original investment and must be divided by the number of compounding periods per year, n, in order to determine the yearly compounded interest rate. D. APR represents the annual percentage rate (as a decimal). Since the APR represents a yearlong rate, to account for fluctuation, the rate needs to be divided by the number of compounding periods per year, n.
B
How do credit card loans differ from ordinary installment loans? Why are credit card loans particularly dangerous? How do credit card loans differ from ordinary installment loans? A. Credit card loans differ from installment loans in that you are required to pay off your balance at the end of each 25 to 30 day grace period. B. Credit card loans differ from installment loans in that you are not required to pay off your balance in any set period of time. Your answer is correct. C. Credit card loans differ from installment loans in that credit cards charge an annual fee, and often raise the interest rate. D. Credit card loans differ from installment loans in that you are required to pay off your balance at the end of each month.
B
My bank paid an annual interest rate (APR) of 4.0% but at the end of the year my account balance had grown by 4.1%. Choose the correct answer below. A. This does not make sense, the annual interest rate (APR) is always the annual percentage yield (APY) and the interest rate paid on the balance. B. This makes sense, because the annual interest rate (APR) does not always match the annual percentage yield (APY). Your answer is correct.C. This does not make sense, the annual interest rate (APR) is always greater than the annual percentage yield (APY) and the interest rate paid on the balance.
B
My student loans were all 2020-year loans at interest rates of 77% or above, so when my bank offered me a 2020-year loan at 22%, I took it and used it to pay off the student loans. Choose the correct answer below. A. This does not make sense because the interest rates of the other student loans are not given. B. This makes sense because the bank loan has the same loan term with a lower interest rate. Your answer is correct. C. This does not make sense because the student loans have different loan terms with varying interest rates. D. This makes sense because the bank loan has a lower loan term with a lower interest rate.
B
Summarize how average spending patterns change with age. Choose the correct answer below. A. As people get older, they tend to spend more on clothing and services than younger people. They also tend to spend less on food and housing than younger people. B. As people get older, they tend to spend more on health care and donations to charity than younger people. They also tend to spend less on personalinsurance, pensions, clothing, and services than younger people. This is the correct answer. C. As people get older, they tend to spend more on transportation and housing than younger people. They also tend to spend less on health care. D. As people get older, they tend to spend more on food and entertainment than younger people. They also tend to spend less on housing than younger people. Your answer is not correct. How can comparing your own spending to average spending patterns help you evaluate your budget?
B
The bank that pays the highest annual percentage rate (APR) is always the best deal. Choose the correct answer below. A. The statement makes sense because a higher APR always results in a higher annual percentage yield than an interest rate with a lower APR. B. The statement does not make sense because, depending on how often the interest is compounded, a lower APR could result in a higher annual percentage yield. Your answer is correct.C. The statement does not make sense because a higher APR always results in a lower annual percentage yield than an interest rate with a lower APR.
B
What does a negative monthly cash flow mean? Choose the correct answer below. A. It means your investments are losing value. When the interest rates decrease, your cash flow becomes negative. B. It means you are spending more money than you are taking in. When you subtract your total expenses from your total income, the difference is negative. Your answer is correct. C. It means your investments are losing value. Each month you lose a percentage of the money that you invested, which is the reason for the negative cash flow. D. It means you are spending more money than you are taking in. When you subtract your total expenses from your total income, the difference is positive. E. It means you are taking in more money than you are spending. When you subtract your total expenses from your total income, the difference is negative. F. It means you are taking in more money than you are spending. When you subtract your total expenses from your total income, the difference is positive.
B
What is continuous compounding? How does the APY for continuous compounding compare to the APY for, say, daily compounding? Explain the formula for continuous compounding. Choose the correct answer below. A. Compounding daily is also known as continuous compounding. The APY for continuous compounding is equivalent to the APY for daily compounding. The formula for continuous compounding is also known as the compound interest formula. Your answer is not correct. B. Compounding infinitely many times per year is called continuous compounding. The APY for continuous compounding is only slightly larger than the APY for daily compounding. The formula for continuous compounding is a special form of the compound interest formula. This is the correct answer. C. Compounding twice daily is called continuous compounding. The APY for continuous compounding is only slightly larger than the APY for daily compounding. The formula for continuous compounding is a special form of the simple interest formula. D. Compounding at least once per year is called continuous compounding. The APY for continuous compounding is smaller than the APY for daily compounding. The formula for continuous compounding is also known as the compound interest formula.
B
With the same term and amount borrowed, what will a loan with a higher APR have? Choose the correct answer below. A. There will be a monthly payment that could be greater or less than that of a loan with a lower APR. There are several other factors that the calculated regular monthly payment amount depends on. B. There will be a higher monthly payment than a loan with a lower APR because a higher APR means a greater amount of interest paid each month. This is the correct answer. C. There will be a higher monthly payment than a loan with a lower APR. The APR in the numerator of the loan payment formula increases, so the regular monthly payment decreases. D. There will be a lower monthly payment than a loan with a lower APR. The number of payment periods per year is smaller when the APR is higher. E. There will be a monthly payment that could be greater or less than that of a loan with a lower APR. The APR is in both the numerator and the denominator, so it is hard to tell. F. There will be a lower monthly payment than a loan with a lower APR because a higher APR means a greater value in the denominator of the loan payment formula.
B
ou are currently paying off a student loan with an interest rate of 1010% and a monthly payment of $400400. You are offered the chance to refinance the remaining balance with a new 1515-year loan with an interest rate of 55% that will give you significantly lower monthly payment. Is refinancing this way a good idea? Choose the correct answer below. A. It's a good idea if it lowers your monthly payment by at least $100. The costs of refinancing can be high, so it's not worth it if the monthly payment won't change by a lot. B. It may or may not be a good idea, depending on closing costs and how many years are remaining in your current loan term. Refinancing would reset the loan term to 1515 years. This is the correct answer. C. It's a good idea if it lowers your monthly payment by at least $100. Then if you pay the $100 anyway, you can pay off the loan sooner. Your answer is not correct. D. It's always a good idea. A borrower should always seek the lowest interest rate possible. E. It may or may not be a good idea, depending on closing costs and how many years are remaining in your current loan term. It's only a good idea if closing costs are minimal. F. It is always a good idea because you would save 55% each month.
B
I'm already retired, so I need low-risk investments. That's why I put most of my money in U.S. Treasury bills, notes, and bonds. Choose the correct answer below. A. This does not make sense because U.S Treasury bills are different than notes and bonds. The U.S Treasury bills are low-risk while the notes and bonds arehigh-risk. B. This makes sense because the safest investments are federally insured bank accounts and U.S. Treasury bills; there's virtually no risk of losing the principal invested. Your answer is correct. C. This makes sense because low-risk is a smart choice for a retired person with limited monthly income. D. This does not make sense because U.S. Treasury bills, notes, and bonds are high-risk investments that offer prospects of higher returns, along with the possibility of losing the principal.
B
Bank A was offering simple interest at 4.75% per year, which was clearly a better deal than the 4.75% compound interest rate at Bank B. Choose the correct answer below. A. The statement does not make sense, because the simple interest pays the same amount as the compound interest at the same interest rate. B. The statement makes sense, because the simple interest pays more than the compound interest. C. The statement does not make sense, because the compound interest pays more than the simple interest.
C
Describe the four-step process of figuring out your monthly budget. Choose the correct answer below. A. First, list all your monthly income. Next, list all your monthly expenses. Then subtract your total income from your total expenses to determine your net monthly cash flow. Finally, make adjustments as needed. B. First, list all your monthly income. Next, list all your monthly credit card debt. Then subtract your total credit card debt from your total income to determine the amount of interest being paid each month. Finally, make adjustments as needed. C. First, list all your monthly income. Next, list all your monthly expenses. Then subtract your total expenses from your total income to determine your net monthly cash flow. Finally, make adjustments as needed. This is the correct answer. D. First, list all your monthly income. Next, list all your monthly expenses. Then add your total expenses to your total income to determine your net monthly cash flow. Finally, make adjustments as needed.
C
Distinguish between the total return and the annual return on an investment. How do you calculate the annual return? Choose the correct answer below. A. The total return is the percentage change in the investment value. The annual return is the annual percentage yield (APY) that would give the same overall growth over Y years. The formula is annual return equals StartFraction left parenthesis Upper A minus Upper P right parenthesis Over Upper P EndFraction times 100 %annual return=(A−P)P×100%. B. The annual return is the percentage change in the investment value. The total return is the annual percentage yield (APY) that would give the same overall growth over Y years. The formula is annual return equals left parenthesis StartFraction Upper A Over Upper P EndFraction right parenthesis Superscript left parenthesis 1 divided by Upper Y right parenthesis Baseline minus 1annual return=AP(1/Y)−1. C. The total return is the percentage change in the investment value. The annual return is the annual percentage yield (APY) that would give the same overall growth over Y years. The formula is annual return equals left parenthesis Start Fraction Upper A Over Upper P End Fraction right parenthesis Superscript left parenthesis 1 divided by Upper Y right parenthesis Baseline minus 1 annual return=AP(1/Y)−1.
C
I had a choice between a fixed rate mortgage at 6% and an adjustable rate mortgage that started at 3% for the first year with a maximum increase of 1.5 percentage points a year. I took the adjustable rate, because I'm planning to move within three years. Choose the correct answer below. A. The statement does not make sense. Adjustable rate mortages usually have higher monthly payments at the beginning of the term than at the end of the term. Your answer is not correct. B. The statement does not make sense. The average monthly payment for the adjustable rate mortgage will be higher over the first three years than the fixed rate mortgage. C. The statement makes sense. The monthly payment for the adjustable rate mortgage is guaranteed to be lower for the first three years of the loan term. This is the correct answer. D. The statement makes sense. For adjustable rate mortgages, the first three years worth of payments go almost entirely toward principal.
C
I'm putting all my savings into stocks because stocks always outperform other types of investments over the long term. Choose the correct answer below. A. The statement does make sense because stocks historically outperform bonds and cash over the long term and investing in stocks is high-risk, which offers higher returns. B. The statement does not make sense because stocks never outperform bonds and cash over the long term. C. The statement does not make sense because although stocks historically outperform bonds and cash over the long term, investing in stocks is high-risk and there is no guarantee that the investment will yield a high return. Your answer is correct. D. The statement does make sense because stocks are a low-risk investment, offering predictable low returns.
C
My financial advisor showed me that I could reach my retirement goal with deposits of $232232 per month and an average return of 55%. But I don't want to deposit that much of my paycheck, so I'm going to reach the same goal by getting an average annual return of 1111% instead. Choose the correct answer below. A. This makes sense because 1111% of $232232 is greater than 55% of $232232. Your answer is not correct. B. This does not make sense because $232232 is not a lot of money to earn interest off of. C. This does not make sense because you cannot choose your own annual rate of return. This is the correct answer. D. This makes sense because an average annual return of 1111% is greater than 55%.
C
My monthly cash flow was minus−$116116, which explained why my credit card debt kept rising. Choose the correct answer below. A. This statement makes sense if the credit card balance is $116116. B. This statement does not make sense because he incorrectly calculated his monthly cash flow. C. This statement makes sense because a cash flow of minus−$116116 means that if he doesn't have any money saved, then any money he spends must be borrowed from a credit card. Your answer is correct. D. This statement does not make sense because minus−$116116 is not a real dollar amount.
C
Suppose you deposited $100100 per month into a savings plan for 1212 years and at the end of that period your balance was $22 comma 80022,800. What was the amount you earned ininterest? Choose the correct answer below. A. It is impossible to compute without knowing the APR. To find the correct answer, multiply each $100100 deposit by the APR, and then multiply the product by the number of months in 1212 years. B. It was $16 comma 80016,800. Calculate the amount deposited over 1212 years and then add it to the balance of $22 comma 80022,800. C. It was $8 comma 4008,400. Calculate the amount deposited over 1212 years and then subtract it from the balance of $22 comma 80022,800. This is the correct answer. D. It was $16 comma 80016,800. Multiply the balance of $22 comma 80022,800 by the number of years, 1212. E. It is impossible to compute without knowing the APR. To find the correct answer, divide the number of payments by the APR. F. It was $8 comma 4008,400. Divide the balance of $22 comma 80022,800 by the number of years, 1212.
C
Suppose you use the compound interest formula to calculate how much you must deposit into a college fund today if you want it to grow in value to $25 comma 00025,000 in ten years. What does the calculation assume? Choose the correct answer below. A. The fund has continuous compounding because it is not clearly stated in the given situation. B. The fund has continuous compounding because the formula is invalid for simple interest. C. The calculation assumes that the average APR remains constant for ten years because it is extremely difficult to find investments with a constant interest rate. Your answer is correct. D. The fund earns simple interest rather than compound interest because compound interest rates cannot be predicted with any certainty. E. The fund earns simple interest rather than compound interest because no such formula exists to predict the growth of investments that use compound interest. F. The calculation assumes that the average APR remains constant for ten years because the formula does not use APR when calculating this value.
C
What is a budget? A. A budget keeps track of how much money you are spending on your credit cards and any interest you are being charged and helps to determine how much interest you can afford to pay. B. A budget is a list of your monthly income, including wages, bank interest, and any other income such as once-per-year payments. C. A budget keeps track of how much money you have coming in and how much you have going out and helps to determine what adjustments need to be made. Your answer is correct.D. A budget is the value obtained from subtracting your monthly expenses from your monthly income.
C
What will evaluating your monthly budget help you learn? Choose the correct answer below. A. You learn how to earn more money. You may realize that you should start working more hours every week to increase your monthly cash flow. B. You learn how to keep your personal spending under control. Once you evaluate your current budget, you'll almost certainly want to make changes to improve your cash flow. C. You learn how to keep your personal spending under control. You could be spending a lot more in certain categories than you had imagined and that the items you thought were causing the biggest difficulties are small compared to other items. Your answer is correct. D. You learn how to make better investments. You may notice that you made a poor investment that is causing you to lose money every month. E. You learn how to make better investments. You may notice that you are spending a higher percentage of your money on entertainment than the average person. F. You learn how to earn more money. You may figure out that you are good at managing finances, and then become a wealthy financial advisor.
C
When I figured out my monthly budget, I included only my rent and my spending on gasoline, because nothing else could possibly add up to much. Choose the correct answer below. A. This statement makes sense because rent and gas are the only expensive items on her list. B. This statement does not make sense because rent and gas prices are constantly on the rise. C. This statement does not make sense because everything she buys during the month will affect her monthly costs and overall cash flow. Your answer is correct. D. This statement makes sense because everything else she buys is so inexpensive that her monthly cash flow will not be affected.
C
I'm putting all my savings into stocks because stocks always outperform other types of investments over the long term. Choose the correct answer below. A. The statement does not make sense because stocks never outperform bonds and cash over the long term. B. The statement does make sense because stocks are a low-risk investment, offering predictable low returns. C. The statement does not make sense because although stocks historically outperform bonds and cash over the long term, investing in stocks is high-risk and there is no guarantee that the investment will yield a high return. Your answer is correct. D. The statement does make sense because stocks historically outperform bonds and cash over the long term and investing in stocks is high-risk, which offers higher returns.
C
Brandon discovered that his daily routine of buying a slice of pizza and a soda at lunch was costing him more than $18 comma 00018,000 per year. Choose the correct answer below. A. This statement makesmakes sense because this would mean that a slice of pizza and a soda costs him about $4949 a day. B. This statement does not make sense because this would mean that a slice of pizza and a soda costs him about $55 a day. C. This statement makes sense because this would mean that a slice of pizza and a soda costs him about $55 a day. D. This statement does not makedoes not make sense because this would mean that a slice of pizza and a soda costs him about $4949 a day.
D
Explain, in general terms, how the portions of loan payments going to principal and interest change over the life of the loan. Choose the correct answer below. A. Installment loans gradually pay down the loan principal while the payments remain the same. Therefore, the interest remains the same and the amount paid toward the principal gradually increases. B. Installment loans gradually pay down the loan principal while the payments remain the same. Therefore, the interest remains the same and the amount paid toward the principal gradually decreases. C. Installment loans gradually pay down the loan principal while the payments remain the same. Therefore, the interest due each month gradually increases and the amount paid toward the principal gradually decreases. Your answer is not correct. D. Installment loans gradually pay down the loan principal while the payments remain the same. Therefore, the interest due each month gradually decreases and the amount paid toward the principal gradually increases.
D
Fixed rate loans with 15-year terms have lower interest rates than loans with 30-year terms, so it always makes sense to take the 15-year loan. Choose the correct answer below. A. This makes sense because it is always better to have loans with short loan terms. A borrower could pay off the loan in 15 years, and then spend the next 15 years saving money. B. This does not make sense because 15-year loans don't usually have lower interest rates. The lenders would never be able to profit if the interest rates of these loans were less than those of 30-year loans. C. This makes sense because paying a lower interest rate for a short period of time is not as costly as paying a higher interest rate for a long period of time. D. This does not make sense because the monthly payments for the 15-year loan are much greater than a 30-year loan, even at a lower interest rate. Even though the interest is higher for 30-year loans, the borrower could pay more toward the principal each month with the option of paying the lower monthly payment if finances are poor one month.
D
Give an example. Choose the correct answer below. A. An investor has a starting principal Pequals=$3000 and an accumulated value of Aequals=$8400 after Yequals=4 years. The annual return is annual return equals StartFraction left parenthesis $ 8400 minus $ 3000 right parenthesis Over $ 3000 EndFraction times 100 % equals 180 %annual return=($8400−$3000)$3000×100%=180%. B. An investor has a starting principal Pequals=$3000 and an accumulated value of Aequals=$8400 after Yequals=4 years. The annual return is zero. C. An investor has a starting principal Pequals=$3000 and an accumulated value of Aequals=$8400 after Yequals=4 years. The annual return is equal to how much he saves over the next four years. D. An investor has a starting principal Pequals=$3000 and an accumulated value of Aequals=$8400 after Yequals=4 years. The annual return is annual return equals left parenthesis StartFraction Upper A Over Upper P EndFraction right parenthesis Superscript 1 divided by Upper Y Baseline minus 1 equals left parenthesis StartFraction $ 8400 Over $ 3000 EndFraction right parenthesis Superscript 1 divided by 4 Baseline minus 1 equals RootIndex 4 StartRoot 2.8 EndRoot minus 1 almost equals 0.294 equals 29.4 %annual return=AP1/Y−1=$8400$30001/4−1=42.8−1≈0.294=29.4%.
D
I bought a fund advertised on the web that says it uses a secret investment strategy to get an annual return twice that of stocks, with no risk at all. Choose the correct answer below. A. The statement does make sense because the strategy indicates that the return is a predictable amount, thus the fund advertised on the web is a no-risk investment. B. The statement does make sense because this secret investing strategy must be a new financial planning strategy that does not incorporate the three traditional investment considerations: liquidity, risk, and return. C. The statement does not make sense because investing in stocks is low-risk to get high returns, thus getting higher returns than stocks with this secret strategy must mean the fund advertised on the web is low-risk, not no risk. Your answer is not correct. D. The statement does not make sense because investing in stocks is high-risk to get high returns, thus getting higher returns than stocks with this secret strategy must mean the fund advertised on the web is high-risk, not no risk.
D
I bought the cheapest health insurance I could find, because that's sure to be the best option for my long-term financial success. Choose the correct answer below. A. This statement does not make sense because health insurance is very expensive. If he really wants to save money, he should drop the insurance plan and hold on to his money. B. This statement makes sense because if he gets sick, the overall cost will be a lot less because he has an inexpensive health insurance plan. C. This statement makes sense because there is no need to buy expensive health insurance. The cheapest plan is good enough, and it will save you money in the long run. D. This statement does not make sense because the cheapest health insurance plans do not cover as much as the more expensive insurance plans. If he getssick, he might end up paying more money than he would if he had a more expensive plan.
D
My vacation travel cost a total of $18001800, which I entered into my monthly budget as $180180 per month. Choose the correct answer below. A. This statement makesmakes sense because when making a monthly budget comma a proratedwhen making a monthly budget, a prorated amount for expenses that don't recur monthly comma such as vacations comma should be included.amount for expenses that don't recur monthly, such as vacations, should be included. B. This statement does not make sense because when making a monthly budget, expenses such as vacations should be ignored since they are a small expense compared to other monthly expenses. C. This statement does not make sense because when making a monthly budget, expenses such as vacations should only be included for the month in which they are taken. D. This statement does not makedoes not make sense because the value entered into the monthly budgetthe value entered into the monthly budget should be $ 150.
D
Suppose you pay only the interest on a loan. Will the loan ever be paid off? Why or why not? Choose the correct answer below. A. No. Interest increases consistently throughout the term of the loan. B. Yes. If only the interest is paid, the principal will decrease over time. C. Yes. All payments are split evenly between interest and principal. D. No. If only the interest is paid, the principal never decreases.
D
What does a loan of $100 comma 000100,000 that carries a 44-point origination fee require as an advance payment? Choose the correct answer below. A. An advance payment of $4 comma 0004,000 is required. Each point is 10% of the loan amount, so the advance payment amount is 440% of $100 comma 000100,000. B. An advance payment of $2 comma 0002,000 is required. Each point is 1% of the loan amount, so the advance payment amount is 44% of $100 comma 000100,000. C. An advance payment of $400400 is required. Each point is 1% of the loan amount, so the advance payment amount is 44% of $100 comma 000100,000. Your answer is not correct. D. An advance payment of $4 comma 0004,000 is required. Each point is 1% of the loan amount, so the advance payment amount is 44% of $100 comma 000100,000. This is the correct answer. E. An advance payment of $2 comma 0002,000 is required. Each point is 10% of the loan amount, so the advance payment amount is 440% of $100 comma 000100,000. F. An advance payment of $400400 is required. Each point is worth between 50 and 100 points depending on the prepayment penalties.
D
What is an installment loan? Explain the meaning and use of the loan payment formula. Choose the correct answer below. A. An installment loan is an amount of money installed electronically into a bank account. B. An installment loan is the amount of money owed at any particular time. Your answer is not correct. C. An installment loan is the time you have to pay back a loan in full. D. An installment loan is a loan that is paid off with equal regular payments.
D
What is the total return on a 99-year investment? Choose the correct answer below. A. It is the value of the investment after 99 years. Time is the only factor that affects total return. As the length of time of the investment increases, the total return increases. B. It is the difference between the final and initial values of the investment. The initial value is how much was invested and the final value is equal to the initial value plus the total return. Your answer is not correct. C. It is the value of the investment after 99 years. The total return is equal to the overall growth over Y years. D. It is the relative change in the value of the investment. The total return shows the percentage change as the value of the investment changes. This is the correct answer. E. It is the difference between the final and initial values of the investment. This shows how much money was made from the initial investment after 99 years. F. It is the relative change in the value of the investment. Then, subtract one from this value to determine the annual return.
D
In the loan payment formula, assuming all other variables are constant, the monthly payment does what? Choose the correct answer below. A. The monthly payment increases as APR increases. As the amount borrowed increases, the numerator of the PMT equation becomes larger and thus, the APR increases. Your answer is not correct. B. The monthly payment increases as P increases because in the loan payment formula, P is the regular monthly payment. C. The monthly payment increases as Y increases. As the exponent in the denominator increases, the regular monthly payments increase. D. The monthly payment increases as APR increases. As the exponent in the denominator increases, the APR increases. E. The monthly payment increases as P increases. As the amount borrowed increases, the numerator of the PMT equation becomes larger and thus, the PMT increases. This is the correct answer. F. The monthly payment increases as Y increases. As the amount borrowed increases, the numerator of the PMT equation becomes larger and thus, Y increases.
E
Company A has 44 million shares outstanding and a share price of $1111 company B has 4040 million shares outstanding and a share price of $1010. Company C has 200 comma 000200,000 shares outstanding and a share price of $110110. Which company has the greatest market capitalization? Choose the correct answer below. A. Company B has the greatest market capitalization. Company B's outstanding shares and share price are in the middle range. It's safer to choose a moderate number of shares and a moderate share price, rather than go to an extreme. B. Company C has the greatest market capitalization. Company C has a lower number of outstanding shares and a higher share price compared to the other two companies. Your answer is not correct. C. Company C has the greatest market capitalization. The ratio of outstanding share to share price is the greatest for company C. D. Company A has the greatest market capitalization. The ratio of outstanding share to share price is the greatest for company A. E. Company A has the greatest market capitalization. Company A has a realistic amount of outstanding shares and a low share price compared to the other two companies. F. Company B has the greatest market capitalization. Company B has a higher number of outstanding shares and a lower share price than the other two companies.
F
If you make monthly payments of $1000 on a 10-year loan, what will your total payments over the life of the loan amount to? Choose the correct answer below. A. The total payments over the life of the loan amount to $100,000. The borrower paid $1000 for 10 years. B. The total payments over the life of the loan amount to $10,000. The borrower paid $1000 each year for 10 years. Your answer is not correct. C. The total payments over the life of the loan amount to $10,000. Multiply $1000 by 10 years to find the total amount. D. The total payments over the life of the loan amount to $120,000. The borrower paid $1000 twenty-four times per year for 10 years. E. The total payments over the life of the loan amount to $100,000. Multiply $1000 by 100 because there were 100 payment periods during the life of the loan. F. The total payments over the life of the loan amount to $120,000. Multiply $1000 per month by 12 months per year by 10 years to find the total amount.
F
What is the price you pay for a bond with a face value of $30003000 selling at 110110 points? Choose the correct answer below. A. It is $31303130. Multiply the face value by 110110%. Your answer is not correct. B. It is $34503450. Divide the face value by 110110 points. C. It is $31303130. Divide the face value by 110110 points. D. It is $34503450. Multiply the face value by 110110%. E. It is $33003300. Divide the face value by 110110 points. F. It is $33003300. Multiply the face value by 110110%.
F
Which of the following is necessary if you want to make monthly contributions to savings? Choose the correct answer below. A. You must not owe money on any loans. This means that you are not spending any money toward interest. If you are not paying interest, you have money to save. B. You must be spending less than 20% of your income on food and clothing. As long as you don't increase your spending in any other category, you should be able to find money to save. C. You must have a positive monthly cash flow. If you have a positive monthly cash flow, you can pay more towards your credit card balance. Once the balance is zero, you should start putting that extra money in the bank. D. You must not owe money on any loans. If you do not owe any money on loans, you will have money left over at the end of each month, which you can use for savings. E. You must be spending less than 20% of your income on food and clothing. Spending less on food and clothing will increase cash flow exponentially every month. F. You must have a positive monthly cash flow. If your cash flow is positive, you will have money left over at the end of each month, which you can use for savings.
F
With the same deposit, APR, and length of time, an investment with monthly compounding will yield what amount? Choose the correct answer below. A. The monthly compounding yields a smaller balance than an account with quarterly compounding because more compounding means a higher yield. B. The monthly compounding yields a greater balance than an account with daily compounding because more compounding means a lower yield. C. The monthly compounding yields a smaller balance than an account with quarterly compounding because more compounding means a lower yield. D. The monthly compounding yields a greater balance than an account with daily compounding because more compounding means a higher yield. E. The monthly compounding yields a greater balance than an account with annual compounding because more compounding means a lower yield. F. The monthly compounding yields a greater balance than an account with annual compounding because more compounding means a higher yield.
F
You drive an average of 414414 miles per week in a car that gets 1616 miles per gallon. With gasoline priced at $33 per gallon, approximately how much would you save each year on gas if you instead had a car that got 4949 miles per gallon? Choose the correct answer below. A. You would save $37183718, the sum of the yearly cost at 1616 mpg, and the yearly cost at 4949 mpg. B. You would save $27182718, the sum of the yearly cost at 1616 mpg, and the yearly cost at 4949 mpg. C. You would save $37183718, the difference between the yearly cost at 1616 mpg, and the yearly cost at 4949 mpg. D. You would save $17181718, the difference between the yearly cost at 1616 mpg, and the yearly cost at 4949 mpg. Your answer is not correct. E. You would save $17181718, the sum of the yearly cost at 1616 mpg, and the yearly cost at 4949 mpg. F. You would save $27182718, the difference between the yearly cost at 1616 mpg, and the yearly cost at 4949 mpg.
F
