Personal Finance Semester Exam

Front

Which of the following statements is TRUE about compound interest? a. Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts, b. Compound interest means you have a fund manager who is compounding your returns without charging a fee, c. Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned, d. Compound interest directly impacts how much you will be charged in fees

Back

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

Front

What does the term "withholding" mean in reference to your paycheck?

Back

How much is being taken out of your paycheck for things like taxes, employer sponsored health insurance, and retirement.

Front

Medicare and Social Security are mandatory spending categories funded by which type of taxes that are withheld from your paycheck?

Back

FICA

Front

Why is diversification a recommended investment strategy?

Back

Diversifying your portfolio helps reduce risk.

Front

How can someone make money from investing in a stock? Options: a. They sell the stock for a lower price than what they bought it for, b. They receive dividends or they sell the stock at a higher price than what they bought it for, c. The stock loses value but the overall market experiences a positive return, d. They sell the stock for the same price they bought it for

Back

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

Front

A fully amortized payment is split into which two components?

Back

The principal and the interest.

Front

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

Back

Months

Front

FDIC Insurance is ...

Back

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

Front

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

Back

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

Front

Why are secured loans considered less risky to the lender?

Back

Lenders can take valuable collateral if you fail to repay your loan.