Financial Literacy Final

The goal of an actively managed fund is to outperform the market. What does this mean?

The fund is managed by a fund manager, who tries to beat the overall market's rate of return

What kinds of behaviors can PREVENT people from making smart investing decisions?

Exiting the market because that's what everyone else is doing

Each of the following is likely to check your credit score EXCEPT? - Landlords - Auto loan lenders - Credit card companies - Federal student loan office

Federal student loan office

As a shareholder in a public company, what are the benefits available to you?

You may receive dividends from the company, if the company pays them, and you have ownership of a portion of the company

Why is it important for you to understand your risk tolerance before you start investing?

You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with

Which response best completes the sentence "It's best to begin establishing credit when you're young because ________"? - Negative marks on your credit report go away faster for younger borrowers - Credit scores are free for anyone under the age of 25 - Accessing credit only becomes more expensive as you get older - You will likely need a credit history to rent your first apartment, finance your first car, or open an unsecured credit card

You will likely need a credit history to rent your first apartment, finance your first car, or open an unsecured credit card

Reading through a credit card's Schumer Box, you see the APR for a specific card is set at 9.99% - 23.99%. Which statement is true? - When given a range of APRs like this, you can assume most cardholders pay the lowest rate listed - In this case, you want the highest APR in the range because you'll earn more - The APR on credit cards is usually fixed, so it won't be adjusted as long as you are a cardholder - Your APR will be within that range, depending on the strength of your credit history

Your APR will be within that range, depending on the strength of your credit history

How can your credit score impact your financial situation?

Your credit score can determine whether you are approved for a loan and what the interest rate on that loan will be

How can your credit score impact your financial well-being? - Consumers with low scores get lower interest rates on loans than those with high scores - Your credit score can determine whether you are approved for a loan and what the interest rate on that loan will be - Only consumers with high scores are approved for credit - It generally has no impact on your financial situation

Your credit score can determine whether you are approved for a loan and what the interest rate on that loan will be

Your teacher tells you about the importance of checking your credit report. Which government-run website allows you to download your credit report for free on an annual basis?

annualcreditreport.com

You buy a bond with a fixed coupon rate of 5%. A year later, similar bonds that are issued have a coupon rate of 3%. Which of the following is TRUE? - The price of your bond will increase - The demand for your bond will decrease - The price of your bond will stay the same - The interest rate for your bond will fall to 3%

brainly says that "The price of your bond will increase" LOL

What strategy should you use to pay off multiple sources of debt if you want to pay the lowest amount of interest over time?

High rate method - i think

All of the following are risks of owning an individual stock, EXCEPT

Demand could unexpectedly increase for your company's stock

A commonly used strategy to minimize investing risk is...

Diversifying across asset classes and within each asset class

Why is diversification a recommended investment strategy?

Diversifying your portfolio helps reduce risk

What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA? - Do I want to make a guaranteed return of 6% or 8%? - Do I want to pay taxes now or later? - Do I want to take on more or less risk? - Do I want to take advantage of my employer's matching contribution?

Do I want to pay taxes now or later?

Which of the following is a characteristic of dollar-cost averaging? - Dollar-cost averaging is offered exclusively through robo-advisors - Dollar-cost averaging is a way to decrease your risk - Dollar-cost averaging is advantageous because earnings are untaxed - Dollar-cost averaging is a strategy that only expert investors use

Dollar-cost averaging is a way to decrease your risk

Which of the following statements is true about this Schumer Box?

A 28.99% APR may be applied to your account for late payment

Which of the following individuals or groups would be the LEAST likely to look at your credit score? - An insurance company reviewing your applicant for auto insurance - Someone interviewing you for a job - Credit card companies - A bank representative who is helping you open a savings account

A bank representative who is helping you open a savings account

One difference between bonds and bond funds is...

A bond fund can help you diversify your investment portfolio

How is a bond different from a stock?

A bond is a loan you give to an organization while a stock is partial ownership in the company.

Which of the following most accurately describes what a bond is?

A bond is an investment in which an investor lends money to a corporation or government with the expectation that it will be paid back with interest

Which of the following accurately describes the difference between an individual bond compared to a bond fund?

A bond is considered to be a less diversified investment than a bond fund

Debt Avalanche Method

A method of debt repayment whereby the borrower prioritizes paying down debts with the highest interest rates first

Debt Snowball Method

A method of debt repayment whereby the borrower prioritizes paying down debts with the smallest balances first

How are active investing and passive investing different?

Active investing is typically done by a fund manager trying to beat the market while passive investing typically involves investing in a popular index like the S&P 500

Which of the following things should you have ready when contacting a credit reporting agency to report an error on your credit report?

An explanation of the mistake and any evidence you have supporting your claim

Which of the following statements BEST describes investing?

Buying assets, like stocks, with the intention to hold them and grow your wealth over the long term

Which of the following statements is TRUE about compound interest?

Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned

Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?

Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month

Who tracks all of your credit information?

Credit reporting agencies (Equifax, Experian and TransUnion)

You're paying your credit card bill and your student loan payment each month, but you're falling behind on your auto loan payment. Which friend's advice could have a NEGATIVE impact on your credit score? - Debbie says, "Stop making the credit card payment for a few months until you're caught up on the auto loan." - Betty says, "Cut down to a bare bones budget, where your necessities and your debt repayments take first priority. Cut everything non-essential." - Angie says, "Pick up a second job for as long as it takes to accumulate enough money to make all your payments, even if it means losing time with friends and family." - Joanie says, "Call the auto lender and see if you can negotiate a lower monthly payment or some other deal."

Debbie says, "Stop making the credit card payment for a few months until you're caught up on the auto loan."

Each of the following financial products will help you build credit history EXCEPT: - Home mortgage - Credit card - Secured credit card - Debit card

Debit card

All of the following are true about a passively managed fund EXCEPT... - A passively managed fund guarantees the average return of the securities it includes - Passively managed funds are managed by a fund manager - Fees for a passively managed fund are typically lower than those for an actively managed fund - Passively managed funds are generally seen as low risk investments

Fees for a passively managed fund are typically lower than those for an actively managed fund

All of the following are strategies to reduce risk EXCEPT...

Hiring an investment manager who you think can beat the market

All of the following are risks of investing in a single stock, EXCEPT... - If the company's profits decline, the stock price could decrease - If the overall stock market declines, the stock price could decrease - If the company goes out of business, stockholders could lose their entire investment - If the company does not issue new stock, current stockholders could lose their entire investment

If the company does not issue new stock, current stockholders could lose their entire investment

Which of the following statements is TRUE? - If you make the minimum payment on your card by the due date, the credit card company will not charge you interest. - If you pay your balance in full after the due date, you will be charged interest. - If you pay your balance in full by the due date, you will be charged interest. - If you pay your balance in full after the due date, the credit card company will not charge you interest.

If you pay your balance in full after the due date, you will be charged interest.

Ben is 24 and wants to start saving for retirement. What can he do to set himself up for success?

Invest 10-15% of his monthly salary

How does investing in the stock market differ from putting money in a savings account at a bank?

Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies

Leaving your investments in the stock market alone for at least five years is a good way to reduce risk because...

It keeps you from reacting to dips in the market and selling at too low of a price

What is a brokerage account used for?

It's a type of account used to buy and sell stocks, bonds, and funds

Your friend confides in you that he has a low credit score. What is the single best way for him to improve his score?

Make on-time payments

Which of the following will help you begin developing a credit history before you graduate from college?

Make small payments on your student loans while in college, even though they are not required to be paid back until you leave

An investor can best harness the power of compounding by doing all of the following, EXCEPT...

Making frequent trades

Geraldo reviews his brokerage statement and sees the following two mutual fund investments that he made a year ago. ActiveFund20 had an average return (before fees) of 7.0% per year and an annual fee of 1%. PassiveFund500 had an average return (before fees) of 6.5% per year and an annual fee of 0.1%. Which investment had a better return for Geraldo (net of fees)?

PassiveFund500: It had an overall return of 6.4% while ActiveFund20 had an overall return of 6.0%

What are the two most important factors in calculating your credit score?

Payment history and total debt/amounts owed

Nancy is new to investing and is eager to get started. All of the following are things she should do EXCEPT...

Pick individual stocks to see if she can beat the market

You bought 10 shares of stock in Streaming VideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. What was your profit or loss on StreamingVideo Co stock? (Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.)

Profit of $350

Which of the following is an example of diversification?

Purchasing shares of stock in a variety of companies and industries

Which of the following would NOT appear on a credit report? - Salary of your current job - Student loan activity - Credit card payment history - Payment history of your car loan

Salary of your current job

How can you make money from investing in a stock?

Sell the stock for more than your purchase price

Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use? - Social Security is a type of retirement savings plan offered by some employers - Social Security is a type of retirement savings plan that you can open through a brokerage firm - Social Security is a government program that pools contributions from current workers to fund retirement support benefits to those who are eligible - Social security is a government mandate that requires employers to offer their employees a 401(k) or pension p

Social Security is a government program that pools contributions from current workers to fund retirement support benefits to those who are eligible

The amount you can charge to a secured credit card is limited by... - How long you've had an account with the bank - The amount of money you deposit into an account as collateral - The total amount of money across all your bank accounts - Your credit score

The amount of money you deposit into an account as collateral

Juan buys a bond with a fixed coupon rate of 3%. Six months later, similar bonds that are issued have a coupon rate of 4%. Which of the following is TRUE if he chooses to sell the bond before maturity?

The price of Juan's bond will decrease

Which of the following is TRUE, based on the historic returns of the S&P 500? - The stock market fluctuates in the short term and the majority of investors can predict the direction of the market. The stock market has an average annual return that is negative, adjusted for inflation. - Stock prices rise consistently in the short term and only decrease during recessions. The stock market has an average annual return of 15%, adjusted for inflation. - On average, the growth of the stock market matches the rate of inflation. It has an average annual return of 2-3%, adjusted for inflation. - The stock market fluctuates in the short term and is difficult to predict. It has an average annual return of 6-7%, adjusted for inflation.

The stock market fluctuates in the short term and is difficult to predict. It has an average annual return of 6-7%, adjusted for inflation.

Why are Index Funds such a popular investing option?

They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500

Which type of retirement account is an investment option for ANY young person?

Traditional IRA

You have a credit card that you use regularly for small purchases with the goal of improving your credit score. Which strategy would have the GREATEST positive impact?

Use less than 30% of the credit limit and pay it off in full every month by the due date

Which of the following statements comparing credit and debit cards is TRUE? Credit card companies provide you with a monthly statement, while debit cards do not Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard Far more businesses accept credit cards than debit cards With debit cards, you're spending your own money at point of sale, while with credit cards, you're promising to pay back the money eventually

With debit cards, you're spending your own money at point of sale, while with credit cards, you're promising to pay back the money eventually

Which statement accurately describes a revolving line of credit? - You owe the same payment every month - One common example is a car auto loan - You can buy additional items as you need them without getting approval for each purchase - They do not charge interest

You can buy additional items as you need them without getting approval for each purchase

According to the Equal Credit Opportunity Act, which of the following factors CAN a lender legally use to charge you a higher interest rate. - Your credit score - Your age, if you're under 21 - The percentage of your income that comes from Social Security payments - Your marital status, if you are single

Your credit score

What will typically happen if to bond prices if interest rates rise

bond prices will fall

When talking about investing, what does it mean when someone refers to a fund?

A pool of money from shareholders that is used to invest in a collection of assets like stocks and bonds

Heather realized she has taken out too much debt and it has started to negatively impact her ability to budget. She has decided to pay off this debt in full as soon as possible. All of the following would be beneficial strategies EXCEPT... - Reducing spending by canceling some of her streaming subscriptions - Making more than the minimum required payment on her debt - Taking extra shifts at work to increase her income - Applying for another credit card to use in case she runs out of cash paying off her debt

Applying for another credit card to use in case she runs out of cash paying off her debt

Which of the following could have a NEGATIVE impact on your credit score if done in a short period of time? - Decreasing your utilization of credit - Paying your bills on-time - Paying down balances on your credit card accounts - Applying for multiple credit cards

Applying for multiple credit cards

Which of the following could have a NEGATIVE impact on your credit score? Paying your bills on-time Decreasing your utilization of credit Applying for multiple credit cards in a short period of time (e.g., a week) Paying down balances on your credit card accounts

Applying for multiple credit cards in a short period of time (e.g., a week)

Melvin is 19 years old and wants to begin establishing a credit history. Which action should he take to meet that goal?

Ask his parents to cosign a credit card or add him as an authorized user on their credit card

Daniel has saved $2,000 in a savings account that earns 0.5% interest annually. What will most likely happen to the purchasing power of his savings over time?

His purchasing power will remain the SAME because the interest rate is the same as the historical rate of inflation

Based on the Card Statement above, which of the following statements is TRUE? If the cardholder pays $523.20 by the due date on the bill, she will pay NO interest to the credit card company. If the cardholder makes her minimum payment of $35.00 by the due date, she will NOT be charged interest on her balances. The cardholder is carrying a balance over from the last period. The cardholder was charged interest on her balances for the last period because she made her payment on time.

If the cardholder pays $523.20 by the due date on the bill, she will pay NO interest to the credit card company.

401(k)s and IRAs are both...

Investment accounts that you can open to help you invest for retirement

Which of the statements below BEST describes the relationship between risk and return when considering an investment? - Investors expect to earn a higher return when they invest in a high risk asset - Investors expect to earn a higher return when they invest in a low risk asset - Investors expect to earn a lower return when they invest in a high risk asset - Investors expect to earn zero return when investing in a low risk asset

Investors expect to earn a higher return when they invest in a high risk asset

An actively managed mutual fund...

Is managed by a fund manager who charges a fee

Which of the following statements about credit scores does this bar graph support?

It is more difficult for young people to borrow because they have less payment history for a lender to rely upon

Which of these credit payback strategies would lead to the HIGHEST overall cost? - Paying off your credit card bill in full every month - Making the minimum payment (3% of your credit card balance) every month on time - Paying 20% of your credit card balance every month on time - Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

You have a credit card and want to know the best way to use it to boost your credit score. Which step will have the greatest impact? - Not using more than 30% of the credit limit on your card and paying it off in full every month by the due date - Put the credit card in a drawer and don't ever use it - Make the minimum payment required on your credit card every month by the due date - Spend up to the full credit limit on your card and pay off the bill in full every month on time

Not using more than 30% of the credit limit on your card and paying it off in full every month by the due date

Which of the following statements about the stock market is true?

Over time, the stock market averages 6-7% growth per year.

What financial product am I? I am a type of credit card that requires cardholders to make a security deposit equal to the credit limit on their account. Due to this deposit requirement, I am often a good choice for young people looking to establish their credit history.

Secured credit card

If you are having trouble making loan or credit card payments, which recommendation below represents the LEAST useful piece of advice? - Call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms - Find an extra source of income by taking a second job, working longer hours, asking for a raise, etc - Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control - Reduce spending in some other area of your budget so you can direct more funds toward debt payments

Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control

What is the relationship between a credit score and credit report?

The information in your credit report is used to calculate your credit score

What statement about credit cards is TRUE? - Since they are tied directly to your checking account, they prevent you from spending money you do not have - As long as you make the minimum payments it's like getting a short-term interest free loan - They can help you establish a credit history - If you need to carry a balance, the interest rates are generally quite low (less than 5%)

They can help you establish a credit history

How can someone make money from investing in a stock?

They receive dividends or they sell the stock at a higher price than what they bought it for

Review this partial credit report, and then choose the response below that accurately depicts the information on the report.

This borrower was 30 days late on their May 2015 payment

Why would credit card companies prefer that their cardholders make the minimum monthly payment every month rather than paying their total balance in full?

This enables the credit card company to make more money

All of the following are reasons to invest, EXCEPT... - To earn a consistent rate of return with lower risk than typical savings accounts - To minimize the impact on inflation, which causes you to lose purchasing power - To build wealth by reinvesting your returns and allowing them to compound - To earn higher average rates of return than you would in a typical savings account

To earn a consistent rate of return with lower risk than typical savings accounts

Which of these represents a potential consequence of neglecting to pay your federal student loans?

Wages or tax refunds can be garnished

Which of the following statements comparing credit and debit cards is TRUE? - Credit card companies provide you with a monthly statement, while debit cards do not - Far more businesses accept credit cards than debit cards - Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard - With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

All of the following are advantages of a 401(k), EXCEPT...

You can invest your 401(k) into a wider variety of asset types than you can with an IRA

All of the following are advantages of saving for retirement in a 401(k), EXCEPT... - A 401(k) has a higher contribution limit than an IRA - Your 401(k) contributions are tax-deductible - You can withdraw money at any time without paying a penalty - Some employers will match contributions to your 401(k)

You can withdraw money at any time without paying a penalty

What benefits do you receive by taking out a loan with a cosigner?

You have a better chance of getting approved and getting a lower interest rate if the cosigner has good credit

A disadvantage of using a robo-adviser might be that...

You may not be able to get advice from a human financial advisor when you want it