personal finance review

Front

Aria recently received some birthday money and decides to deposit it in her local bank. Which of the following statements BEST describes what happens to her money after she deposits it?

Back

Banks take in deposits, for which they pay a relatively small rate of interest; they then hold a small amount aside and loan out the rest at a higher rate of interest.

Answer explanation

The correct choice explains that banks take deposits, pay a small interest, and loan out most of the money at higher interest rates, which is a fundamental banking practice.

Front

What is the regular payment Charlotte makes to her car insurance company to keep her coverage active?

Back

Premium

Answer explanation

The regular payment Charlotte makes to her car insurance company is called a 'premium.' This is the amount paid to maintain her insurance coverage, distinguishing it from other terms like deductible or policy.

Front

Mrs. Gonzalez received a $50,000 bank loan in order to expand and remodel her restaurant. Which of the following was the bank’s MOST important consideration in giving her the loan? The type of food she serves and the prices she charges, A detailed estimate of how she plans to spend the money, The total value of her current property, capital, and other assets, The reliability of the construction company she hired to make the improvements

Back

The total value of her current property, capital, and other assets

Answer explanation

The bank's most important consideration is the total value of Mrs. Gonzalez's current property, capital, and other assets, as this indicates her ability to repay the loan and reduces the bank's risk.

Front

Mr. Spencer is trying to decide whether to invest in bonds or stocks. Which sentence BEST describes his options in terms of risks and returns?

Back

Bonds offer fewer risks, but stocks offer higher potential rewards.

Answer explanation

Bonds are generally considered safer investments with lower returns, while stocks carry higher risks but also the potential for greater rewards. Therefore, the correct choice is that bonds offer fewer risks, but stocks offer higher potential rewards.

Front

Evelyn is shopping for car insurance and is considering a policy with a high deductible. Which choice describes the advantages and disadvantages of choosing an insurance policy with a high deductible?

Back

Advantage: lower premium; disadvantage: higher out-of-pocket costs for claims

Answer explanation

Choosing a high deductible means lower premiums, making it more affordable monthly. However, in the event of a claim, the out-of-pocket costs will be higher, which can be a financial burden.

Front

Which factors are usually the BEST predictors of financial and career success? Consider: High school grades and extra-curricular activities, Athletic achievement and personal popularity, Education/training level and workplace skills, Level of personal ambition and determination to succeed at any cost.

Back

Education/training level and workplace skills

Answer explanation

Education/training level and workplace skills are crucial for financial and career success, as they directly impact job opportunities and performance, unlike grades or popularity which are less predictive.

Front

Grace is deciding whether to invest her money in stocks or bonds. When she chooses to invest in stocks rather than bonds, what trade-offs is she making?

Back

Giving up lower risks to receive higher returns

Answer explanation

By choosing stocks, Grace is giving up the lower risks associated with bonds in exchange for the potential of higher returns that stocks offer. This reflects a willingness to accept more risk for greater reward.

Front

Which of the following statements MOST ACCURATELY defines the term “interest rate” in this situation?
- The level of attention that economics pay to economic activity at any one time
- Money paid by banks and financial institutions to the US government
- Money paid by the borrower to a lender in exchange for the use of money
- Discounts on purchases made with a credit card

Back

Money paid by the borrower to a lender in exchange for the use of money

Answer explanation

The correct choice defines the interest rate as the money paid by the borrower to a lender for using their money. This is relevant to Charlotte's situation, as she will pay back the $1,000 plus interest.

Front

Brian is working as a project manager at a technology company. He is hoping to move up in his company and earn a promotion. Which step can he take to help achieve his goal? Options: Increase his number of capital investments, Pay more subsidies, Better assess his opportunity costs, Invest in additional training.

Back

Invest in additional training.

Answer explanation

Investing in additional training enhances Brian's skills and knowledge, making him a more valuable asset to the company and increasing his chances for promotion.

Front

Ava is worried that she might not be able to pay her medical bills if she is ever in a serious accident. What should she definitely consider investing in?

Back

Insurance.

Answer explanation

Ava should definitely consider investing in insurance, as it provides financial protection against medical bills in case of a serious accident, ensuring she can manage unexpected healthcare costs.