Test 5 Review Guide

Front

Mutual funds help spread out the risk of investing by

Back

investing in a variety of stocks and bonds.

Answer explanation

Mutual funds generally include a variety of securities, including stocks and bonds. Even if one security fails, you're protected by having invested in many different companies.

Front

What type of investment typically offers the most reward, but also the great risk? Options: Corporate Bonds, Certificates of Deposit, Savings Accounts, Corporate Stock

Back

Corporate Stock

Front

What type of U. S. Savings bond is guaranteed to double after 20 years?

Back

EE Bond

Front

Getting something now with a promise of repaying it later is using

Back

credit

Answer explanation

Credit is "the advance of money with a promise to repay at a later date".

Front

What type of U.S. Savings Bond is tied to inflation?

Back

I Bonds

Front

Which offers the least amount of liquidity? Savings account, NOW account, Certificate of Deposit, Money Market Fund

Back

Certificate of Deposit

Answer explanation

CDs cannot be accessed for a set amount of time. E.g., an 18-month CD can't be accessed for 18 months. On the other hand, savings and checking account funds can be accessed pretty much immediately. Mutual funds are generally not quite as liquid as savings and checking funds.

Front

Credit rating is related to which of the three "Cs"?

Back

Character

Answer explanation

Character includes your credit history. How well you've kept up with your bills will determine your credit rating.

Front

Why is buying on credit not always a good thing?

Back

It encourages people to buy things they can't really afford.

Answer explanation

People sometimes don't see the impact of their spending until well after the purchases. Over time, excessive spending can create stress and loss of property.

Front

Annual Percentage Rate (APR) stands for

Back

the yearly interest rate on a loan.

Answer explanation

APR is just another way of saying the annual interest rate.

Front

Jack makes $70,000. This salary is related to Jack's

Back

capacity

Answer explanation

Capacity refers to a potential borrower's income and current expenses.