Test Review Chap 4-6

Susan and Maria both invest $5,000 in savings accounts with the same interest rate. Susan’s account earns simple interest, while Maria’s account earns compound interest. After 10 years, Mariass account balance is higher than Susan’s. What is the reason for the difference in their account balances?

• Simple interest is calculated on the initial deposit only, while compound interest is calculated on both the initial deposit and the accumulated interest.

• Jake’s account had a higher interest rate than Emma’s account.

• Compound interest decreases over time, while simple interest remains constant.

• Simple interest applies only to small deposits, while compound interest applies to large deposits.

You should always create a monthly budget—weekly or biweekly budgets tend to be inaccurate.

• True
• False

Which expenses are easier to change quickly?

• Fixed expenses

• Variable expenses

In a balanced budget,

• expenses = savings.
• gross income = disposable income.
• expenses – savings = gross income.
• expenses + savings = earnings + borrowing

Most financial experts recommend that a family have fixed expenses of no more than

• 50 to 60 percent of net pay.
• 50 to 60 percent of gross pay.
• 50 to 60 percent of variable expenses.
• 50 percent of gross pay or 60 percent of net pay, whichever is higher.

Which of the following is a variable expense?

• electric bill

• insurance premium

• mortgage

• streaming subscription

Which of the following would be considered an asset?

• a car loan
• a checking account
• a credit card account
• all of the above are assets

The IRS has the legal right to audit your tax returns and supporting records for ___ years from the date of filing.

• 2
• 5
• 10
• 3

Kenyatta often checks her banking app to monitor her account balance before making purchases. Her financial advisor suggests keeping a personal account register as well. What is the primary reason why depending solely on a banking app's balance might result in financial mismanagement?

• Banking apps do not provide a comprehensive view of all financial accounts a person holds.

• Pending transactions, automatic payments, and processing delays might not be shown in the app’s balance, causing potential overspending.

• Maintaining an account register can help individuals secure loans by providing a detailed transaction history.

• Frequent updates to banking app interfaces can confuse users who rely on them for balance checks.

Yi Ming is evaluating his financial health by determining his net worth. He has the following assets and liabilities: Credit card debt: $1,000 Checking account: $2,000 Savings account: $4,000 Car value: $12,000 Student loan balance: $17,000 Retirement account: $29,000 Car loan balance: $5,000 Based on this information, what is Yi Ming’s net worth?

• $24,000

• $22,000

• $26,000

• $14,000