Personal Finance Final
Experts recommend that you accumulate enough to cover 3 to 6 __________________ of expenses in your emergency fund.
Months
Why is diversification a recommended investment strategy?
Diversifying your portfolio helps reduce risk
What is interest rate?
The cost of borrowing money
How often do customers typically receive a bank statement for their checking account?
Monthly
Which of these lists ranks the savings options from highest expected interest rate to lowest expected interest rate?
10-year CD, 5-year CD, Online savings account, Savings account at traditional bank
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
Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?
A TDF will automatically adjust his asset allocation based on the retirement year he has chosen
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 accurately describes a difference between an individual bond compared to a bond fund?
A bond is considered to be a less diversified investment than a bond fund
You are developing a savings plan and using short-, medium-, and long-term goals to motivate you. Which represents possible goals from short-term to long-term Save for...
A new cell phone, college tuition, a house down payment
Which represents the BEST time to start saving for your retirement?
As soon as you have your first full-time job
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
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
Juan saved $1,000 from his summer job cleaning pools. Which of these account types would work best for him if he doesn't need access to the money for a number of years AND wants to earn the highest interest rate?
Certificate of deposit
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
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 her bank immediately as it appears that her 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 when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?
Do I want to pay taxes now or later?
Which of the following is a characteristic of dollar-cost averaging?
Dollar-cost averaging is a way to decrease your risk
What kinds of behaviors can PREVENT people from making smart investing decisions?
Exiting the market because that's what everyone else is doing
Fill in the blanks: If inflation is _____________ your savings account interest rate then you will be ______________ purchasing power.
Higher than, losing
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 DECREASE because the interest rate is lower than the historical rate of inflation
All of the following statements about bank accounts are true EXCEPT...
Historically, savings accounts earn higher returns than investments in the stock market
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
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
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 funds
A person-to-person payment app could be used in each of the following scenarios EXCEPT...
Mia pays Cheesy Pizza Co. for a pizza she orders on their website
Fill in the blanks with the correct responses. If you follow the 50-30-20 rule of budgeting, you'll be putting 50% of your monthly income toward _______________, 30% of your monthly income toward _____________, and 20% of your monthly income toward ______________.
Needs, savings, wants
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%
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
All of the following are true about prepaid cards EXCEPT...
Prepaid cards are a great way to build credit
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.)
Profit of $350
FDIC Insurance is...
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
When signing up for a new checking account you answer "No" and opt out of overdraft protection. On this day, you have $10 in your account and go out and use your debit card to buy lunch for $12, a movie ticket for $12 and dinner for $15. What is likely to be the outcome resulting from these transactions?
Since you declined overdraft protection, the bank will not allow you to overdraw your account so your debit card will be denied
Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use?
Social Security is a government program that pools contributions from current workers to fund retirement support benefits to those who are eligible
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
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
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
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
Three of these statements best describe a checking account. Which statement best describes a savings account?
This account pays you interest on money you have put away for later to help your money grow
Which of the following statements is an advantage of online banking?
Using online banking, you can request transfers, pay bills and automate your savings without visiting the bank branch
Which of the following transactions will REDUCE your checking account balance immediately?
Using your debit card to pay for groceries at the supermarket
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
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
When signing up for a new checking account, you answer "Yes" to receive overdraft protection. On this day, you have $10 in your account and go out and use your debit card to buy lunch for $12, a movie ticket for $12 and dinner for $15. What is likely to be the outcome resulting from these transactions?
You will likely be charged an overdraft fee for one or more of the transactions and also will need to repay the bank for the amount overdrawn
Fill in the blanks: Direct deposit typically refers to your ______ sending your ______ electronically to your bank account.
employer, paycheck
