Financial Literacy Test (Chp #5)

Front

What is the primary benefit of a 529 savings plan?

Back

It allows contributions to grow tax-free.

Front

Which of the following statements is true about the 529 prepaid plan? A) It can be used for any college in the U.S. without restrictions. B) It allows prepayment of tuition at current prices. C) It is a type of savings account. D) It is only available to in-state residents.

Back

It allows prepayment of tuition at current prices.

Front

What is the maximum yearly contribution limit for a Coverdell Education Savings Account?

Back

$2,000

Front

Which of the following savings options typically offers the highest interest rate? Savings Account, Money Market Account, Certificate of Deposit (CD), 529 Savings Plan

Back

Certificate of Deposit (CD)

Front

What is a key characteristic of a Certificate of Deposit (CD)?

Back

It has a fixed term during which you cannot access your money.

Front

How does compound interest differ from simple interest?

Back

Compound interest is calculated on both the principal and accumulated interest.

Front

Which of the following best describes the Rule of 72? A) A method to calculate the maximum contribution to a savings account. B) A formula to estimate how long it will take for an investment to double. C) A guideline for setting savings goals. D) A rule for determining interest rates.

Back

A formula to estimate how long it will take for an investment to double.

Front

What is the main purpose of setting specific financial goals?

Back

To provide clarity and direction in your savings plan.

Front

If you want to save for a new computer costing 600 and plan to save $150 per month, how many months will it take to reach your goal?

Back

4 months

Front

Which of the following is NOT a benefit of saving money? Increased financial security, Ability to invest for future growth, Building an emergency fund, Immediate gratification or enjoyment

Back

Immediate gratification or enjoyment