Personal Finance Final

Why is diversification a recommended investment strategy?

Diversifying your portfolio helps reduce risk

In current markets, which of these represents a competitive but realistic interest rate on a savings account?

2%

Joelle wants to have an emergency fund to cover 6 months of her expenses. Her monthly gross pay is $4,000 and her monthly expenses are $2,000. If she plans to save 10% of her gross pay each month, how long will it take her to build her emergency fund?

30 months

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

When a bank says their savings account earns 1% interest, that typically means you will earn 1% interest over what period of time?

Annually

You overhear your Aunt Tina tell your mom that she, her husband, and their kids are "living paycheck to paycheck". What does Aunt Tina mean by that?

Aunt Tina and her family don't have any money saved, and their paychecks are just barely covering monthly expenses, so they use every dollar every month

Which of these is an example of "FOMO?"

Buying new sneakers the day they come out, because you know others in your class will have them, too

If you are trying to protect your checking account information, it is dangerous to

Carry the PIN number for your debit card with you in your purse, wallet, or backpack

Why is compound interest more advantageous than simple 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

Jocelyn gets a text alert from the bank that her account balance has dropped below $100 after a series of $20 ATM withdrawals. She has not used her ATM in over a week and wonders what she should do. What would you recommend?

Contact your bank immediately as it appears that your account may have been hacked

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

What is one question an investor should ask before investing in a Roth IRA or a Traditional IRA?

Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?

Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?

ETF prices can change throughout the day as they are exchanged on the market

What is the mathematical formula that you would use to describe the financial activity on a bank statement?

Ending Balance = Previous Balance + Deposits - Withdrawals - Fees

You bought 10 shares of stock in StreamingVideoCo 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 StreamingVideoCo stock? Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.

Gain of $350

Which of the following statements about banks is FALSE?

Historically, savings accounts earn higher returns than investments in the stock market

An actively managed mutual fund...

Is managed by a fund manager who charges a fee

You are at the checkout counter at the local supermarket and use your debit card to pay for your groceries. Where does the money for this purchase come from?

It is deducted directly from your checking account

What is a brokerage account used for?

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

How often do customers typically receive a bank statement for their checking account?

Monthly

Experts recommend that you accumulate enough to cover 3-6 ________ of expenses in your emergency fund.

Months

If you follow the 50-20-30 rule of budgeting, you'll be putting 50% of your monthly income toward _______ , 20% of your monthly income toward _________ , and 30% of your monthly income toward _____________

Needs, savings, wants

Geraldo reviews his brokerage statement and sees the following two investments that he made a year ago. ActiveFund20 had an annual fee of 1% and had an average return (before fees) of 7% per year. PassiveFund500 had an annual fee of 0.1% and had an average return (before fees) of 6.5% per year. 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%

Nancy is a beginner level investor 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

FDIC Insurance

Protection for bank customers' deposits up to $250,000, guaranteeing their money is still available if the bank goes out of business.

Which of the following is an effective strategy for personal saving?

Save a certain percentage of each paycheck and deposit it directly into a savings account

Which statement best describes the difference between saving and investing?

Saving goes into an FDIC insured bank while investing typically goes into stock or bond markets

Why are Target Date Funds (TDFs) becoming an increasingly popular option to invest in?

Target Date Funds automatically adjust the allocation between stocks and bonds as you age

Why is investing a better option than saving when it comes to planning for retirement?

The stock market historically has returns higher than the rate of inflation, so your money can actually grow

Which of the following statements is TRUE?

The majority of Americans do NOT have an adequate emergency fund or sufficient amounts of money saved for retirement

Stanley deposits $1,000 into a savings account that pays 1% interest per year. At the end of the first year, he's earned $10 in interest and there is $1,010 in the account. If the account has simple interest, the 1% interest for year two would be based off ____________. If the account has compounding interest, the 1% interest for year two would be based off ________________.(NOTE: The first choice goes in the first blank, the second choice goes in the second blank).

The original deposit (1,000) ; The year one account balance (1,010)

What is a vesting period?

The period of time it takes for shares in an employer retirement plan to be owned fully by the employee

How can someone make money from investing in a stock?

They receive dividends from the company they bought the stock in and/or they sell the stock at a higher price than what they bought it for

Which of the following is a way to access the money in your checking account?

Using your debit card to pay for groceries at the checkout

Which of the following transactions will REDUCE your checking account balance immediately?

Using your debit card to pay for groceries at the supermarket

Direct deposit typically refers to your

employer sending your paycheck electronically to your bank account