Investment and Savings Planning Test Review

Which of the following best describes liquidity?

• The amount of money needed to pay for necessities and comforts

• How quickly and easily an asset can be converted into cash

• The amount of savings available

• A measurement of how much a person or household owns once all debts have been paid

To maximize returns using the time value of money, one should:

• Invest at a high interest rate only

• Invest as long as possible at the highest interest rate possible

• Invest a small amount for a short period at the highest interest rate possible

• Invest a large principal amount and make no additional investments

Simple interest is defined as:

• Interest earned on the principal investment

• Any form of interest earned from saving or investing

• Earning interest on interest

• The effect interest has on the total return on investment

Giving up food from the vending machine to save $100 a month for an emergency fund is an example of:

• Cost

• Specific part of the SMART goal

• Trade-off

• Interest

The relationship between risk and return in investing is:

• No relationship exists

• Higher risk indicates lower return

• Higher risk indicates no return

• Higher risk indicates higher return

A bond is:

• An investment with significant fluctuations over a short period

• An investment offered only by depository institutions

• A type of debt issued by a company to investors for a specified period

• A share of ownership in a company

A diversified portfolio is desirable because it:

• Increases the risk/return ratio

• Limits choices to one or two investment tools

• Decreases risk by investing in a variety of tools

• Indicates good prediction of investment returns

Which investment type offers the highest potential return?

• Payday loans

• Savings account

• Stocks

• Bonds

The interest rate is an important consideration when choosing a savings account.

• True

• False

Two main goals of investments are to finance future goals and generate wealth.

• True

• False