Financial Planning Semester Exam

True or False: a Traditional CD has a maturity date?

• True

• False

A Health Savings Account is tax-deductible?

• True

• False

What does it mean when an account is tax-deductible?

• The account is free to open and requires no fees or taxes on any transactions.

• The account allows you to deduct expenses from your taxes only if you meet a specific withdrawal threshold.

• All funds in the account are exempt from taxation at any time, including withdrawals.

• Contributions to the account reduce your taxable income for the year, potentially lowering the amount of taxes you owe.

What is the interest rate of a high-yield Money Market Account? Mark only one oval.

• 1.5 to 5%

• 5%-10%

• 3% only

• 6%-10%

Which of these is a risk associated with a tax-advance Money Market Account? Choose all that apply (there are 3). Check all that apply.

• Inflation

• Fees: minimum balance, transaction fees

• Interest Rate fluctuation

• Not Tax Deductible

• A withdraw limit

Explain what an interest-bearing checking account is. What is a typical interest rate associated with this account?

• An account that pays interest on your balance while allowing regular transactions, with rates typically ranging from 0.01% to 0.50%.

• A savings account designed for long-term deposits, with rates typically ranging from 2% to 4%.

• An account used exclusively for earning high interest, typically ranging from 5% to 10%, without transaction features.

• A standard checking account with no interest, but offering rewards for spending.

What is the highest interest rate a general savings account can earn? Mark only one oval.

• 6%

• 10%

• .45%

• 5.05%

When opening any type of savings accounts, why is it important to take into account the interest rate, including a compound interest account?

• Because the interest rate limits the number of transactions you can make with your account.

• Because a higher interest rate means you can withdraw your money without penalties or fees.

• Because the interest rate determines how quickly your money grows over time, with compound interest offering the benefit of earning interest on both your initial deposit and previously earned interest.

• Because the interest rate determines how much you are required to pay the bank annually to keep the account open.

What is the process of distributing resources, such as capital or investment funds, among various assets or projects to optimize returns or minimize risk called?

• Budgeting

• Diversification

• Investment

• Allocation

What is the process of spreading out a loan into a series of fixed payments over time, where each payment covers both interest and principal?

• Inflation

• Depreciation

• Capitalization

• Amortization