Economics and Personal Finance DE Module 11

You earn $1,300 working at a summer job. You decide to put it into an account and leave it there for four years while you are in college. The principal will earn 1.5% simple interest. How much will you have in your account at the end of four years?

$1,378

The future value of $2000 earning 3% interest for 1 year is:

$2060

Your grandparents deposited $500 into your account 10 years ago. The principal has been earning 4.75% simple interest annually. How much interest has been added to the principal?

$237.50

Calculate the amount of interest on a $1,400 deposit at 4% interest for 5 years using the Simple Interest formula.

$280

Your parents deposited $500 into your account 10 years ago. The principal has been earning 4.75% compounded annually. How much interest has been added to the principal?

$295.26

Alex has $5,500 saved for a car and needs to have $11,500 to buy the type of car he wants in 6 years. Using the Rule of 72, how much interest would she have to earn on an investment to meet these financial goals?

12%

The Social Security program was created in the

1930's

The Social Security Trust fund is expected to be depleted in the _____________, and an alternate method of funding Social Security payment shortages will need to be located.

2030's

The future value of $2000 earning 3% interest for 2 years is roughly:

2122

Retirees will receive Social Security payments that are calculated based on the amount of money earned during the _______________ of employment when they earned the most.

35 years

Under FICA, employers and employees are taxed at ____________% to fund the Social Security program.

6.2

For anyone born in 1960 or later the full retirement age when they can collect Social Security benefits is ________________.

67

Which statement is most likely true? Laddering keeps all your money locked into long-term investments Certificates of Deposit have shorter terms than all bonds A five-year CD has a higher interest rate than a two-year CD Stocks are always safer than Certificates of Deposit

A five-year CD has a higher interest rate than a two-year CD

____________________ are not very liquid because you cannot take out money when you want or pay a penalty or lose interest; however, the longer the term the higher the return.

Certificates of Deposit

Which of the following investment options has the highest potential risk and the highest potential return?

Commodities

Charles has a bank account that pays interest based on the amount he puts in and the past interest combined. What is this type of interest called?

Compound

If the yield on investment alternatives to bonds were to increase, what would likely happen to the price of bonds?

Decrease

Which of the following people is likely to pay the highest interest rate for a car loan? Mark, who has worked as a manager at McDonalds for ten years. Ludwig, who is 24 and just landed his first full-time job as an electrical engineer. Ella, who is 18 and works part time at McDonalds while going to school. Joe, who is 45 and has worked as an electrical engineer for 20 years.

Ella, who is 18 and works part time at McDonalds while going to school.

To determine the future value of an investment, you need the inflation rate for the calculation.

False

Each of the following is a benefit of issuing stock to grow a business except: The possibility of rapid growth. Access to money that she does not have to repay, unlike a loan. Giving up shares of ownership. Access to more funds than she could get from her own savings.

Giving up shares of ownership.

Diversification offers all of the following benefits, except: Increases your opportunity for return Spreads your risk over many financial investments Guarantees a positive return on your financial investments. Reduces your risk

Guarantees a positive return on your financial investments.

Which is an advantage of laddering?

Having some liquidity

What is the difference between actively managed funds and index funds?

Index funds attempt to match the returns of stock indexes like the Dow Jones Industrial Average.

Corporations selling stock for the first time are offering ____________________

Initial Public Offerings (IPO)

You want to open a money market account. Which of the following is a risk?

It has a variable rate, so you never know what your return will be

What is an index fund?

It tries to match the performance of big U.S. stocks

You invest in real estate. A major reward is that you have _______________ so you can borrow on the value of your property.

Leverage

_______________________ is the national health insurance program for people over the age of 65.

Medicare

You have $5,000 to invest. You might need to use one-quarter of the money next month. Which of the following would be the best investment for you?

Money Market Account

Which of these investments is not insured by FDIC but still considered a relatively safe investment option?

Money Market Mutual Fund is not insured

You have just received an inheritance of $3,000 and are not sure exactly what to do with it. Which of the following could be the best place for the money to earn a higher yield in the short run until you decide on a long term investment strategy?

Money Market Mutual Funds

You want to make an investment that is diverse but that might offer a better-than-average return over several years. Which might be the best investment for you?

Mutual Funds

This stock market completes all transactions electronically.

NASDAQ

The biggest and oldest stock market in the United States is the

New York Stock Exchange (NYSE)

What is the major disadvantage of having a regular savings account?

Not having enough growth potential

Which of the following best describes a certificate of deposit?

Not very liquid because you cannot withdraw money whenever you want without a penalty or a loss of interest

The original capital deposited or invested is called the ______________

Principal

The independent federal agency that administers and enforces federal laws on securities (stocks and bonds) is the

SEC

Which savings option has a low return but is very liquid given that it is easy to convert to cash?

Savings Account

You want to invest in a computer/internet company. Which type of investment would you most likely choose?

Stocks

During years where the amount of money collected by the federal government for Social Security exceeds the amount paid out as benefits, the remainder is placed into ______________________.

The Social Security Trust Fund

Capital gain means

The price of a financial asset increased between the time it was purchased and the time it was sold.

Any employer match in a retirement account for employees is essentially free money to the employee.

True

Some types of mutual funds and retirement accounts have different tax implications.

True

Investors may buy I and E/EE Series Bonds for any incremental amount beginning at $25.00, and including dollars and cents.

True, they can buy them for that cheap.

___________________ are convenient because you can buy them at banks, through employers' payroll deduction programs, through automatic debits from checking or savings accounts, or from the U.S. Treasury online.

U.S. Savings Bonds

If an investor buys a bond that pays interest quarterly, he or she owns:

a coupon bond

Compound interest is paid periodically on the principal plus ____________.

any interest earned

Which of the following is true about REITs? both They are professionally managed real estate portfolios. They allow anyone to easily invest in commercial real estate. None of these

both

Investment companies are companies that...

collects and pools money from many investors and invests in stocks, bonds, and other assets

The fee charged by a stockbroker to make a purchase of stock on a customer's behalf is a _______________

commission

Which of the following financial investments would be considered most risky? commodities mutual funds stocks savings accounts

commodities

In order for the rule of 72 to give an accurate estimate of how long it will take to double in size, the interest rate must be ________________ across the time period.

constant

Money collected now for Social Security taxes will be used to provide income for __________________

current retirees

The profit payment made to an investor from a corporation is a _______________________

dividend

The higher the interest rate, the higher the _________________ will be.

future value of money

Each of the following is a benefit of issuing stock to grow a business except: Giving up shares of ownership. Access to more funds than she could get from her own savings. Access to money that she does not have to repay, unlike a loan. The possibility of rapid growth.

giving up shares of ownership

The amount charged to have a loan is called

interest

To calculate the future value of money, you need to know the amount of money you have now, the number of periods, and the __________________.

interest rate per period

The rule of 72 demonstrates that if you want to double the value of your money faster, you need to seek investments with higher _______________________.

interest rates

The collection of all the different types of investments that belong to an individual is a _____________________________

investment portfolio

All of these things contribute to an individual's level of risk tolerance except _____________________ income age personality location

location

If an individual invests their money in a risky asset, they expect to earn ______________ if it was a safer asset.

more than

In the secondary market where stocks are bought and sold, the corporation that issued the stock ___________________________

receives no additional money from any sales

A share of ownership in a company is known as ________________

stock

The _________________________ is the location where stocks are bought and sold.

stock market

Investors can learn about the historical performance of a stock by looking at a ________________________

stock table

You invest in a retirement plan and after three years want to withdraw the funds. You should not do this because there is a __________________ for early withdrawal of funds.

substantial penalty

To get an approximation of how long it will take to double the size of your investment, use ________________________.

the Rule of 70 or the Rule of 72

To calculate compound interest earnings, the formula requires that you know the amount of principal, the number of time periods, and _______________.

the interest rate

An individual can begin collecting Social Security benefits at age 62, however,

their payments will be lower than if they wait until their full retirement age

Which of the following is not true about stocks: there is a secondary market where the resale of stocks occur they are guaranteed to hold their value over time they are shares of ownership in a company owning stock in multiple companies decreases the risk

they are guaranteed to hold their value over time

Individuals may restructure their investment portfolios because: 1. They may need to increase diversification of assets held 2. Their portfolio is not performing as well as anticipated 3. They are older than when the first opened the portfolio

true

The first step in creating an investment portfolio is to determine ______________.

why the individual is investing

Monitoring your investment portfolio is important because

your goals change over time