Chapter 11

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A savings tool that loans money to the U.S. government for a specified period of time. The bondholder is repaid with interest at the time of maturity.

U.S. savings bond

The rate of yearly earnings from an account, including compound interest.

annual percentage yield (APY)

Liquidity of savings refers to

availability of your funds on short notice

A savings tool in which money is deposited for a set period of time and earns a set annual rate of interest.

certificate of deposit (CD)

Interest figured on money deposited plus interest.

compound interest

Which of the following ways of figuring interest on savings will produce the most earnings?

daily

A certificate of deposit is a good savings tool to use for an emergency fund.

false

An emergency fund should contain enough money to cover two months of living expenses.

false

Inflation increases the value of savings

false

Regular savings accounts offer the highest interest earnings of all savings choices.

false

Simple interest makes money grow more quickly than compound interest.

false

The Rule of 72 is used to calculate how long it will take for savings to triple in value.

false

The Truth in Savings Act is designed to help consumers compare credit costs.

false

The lower the interest rate on a savings account, the higher the earnings.

false

Due to inflation, a dollar buys

less this year than last year

An opportunity cost of spending money is

lost opportunity to earn interest on savings

A savings account that pays a higher interest rate, but usually requires a minimum balance and has limited check writing privileges.

money market deposit account

A savings plan consists of all of the following except

opening a credit card account

All goals for savings should be

realistic, specific, and measurable

A savings account that pays interest and allows you to make deposits and withdrawals.

regular savings account

A method used to estimate the amount of time or interest it will take for savings to double in value.

rule of 72

Interest computed only on the principal.

simple interest

Savings or earnings that are not taxed until the funds are withdrawn.

tax deferred

Earnings that are free of certain taxes.

tax exempt

Simple interest is computed on

the principal

Compound interest is computed on

the principal plus the interest earned

Which of the following does not apply to a money market deposit account?

they have unlimited check writing privileges

A money market deposit account is more liquid than a certificate of deposit.

true

I-Bonds pay a fixed interest rate plus a semi-annual inflation rate based on the consumer price index.

true

Interest earnings are considered taxable income.

true

Interest on U.S. Savings Bonds is tax deferred.

true

Money is a limited resource.

true

Series EE savings bonds are issued by the U.S. Treasury and sell at half their face value.

true

The more often interest is compounded, the faster savings grow.

true

Which of the following does not apply to a certificate of deposit?

you may deposit funds in any amount and withdraw as you wish

The number of years it will take to double savings at a 3 percent annual interest rate is

24

The annual interest rate needed to double savings in 10 years is

7.2


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