Personal Finance 2013 Quiz 1
A review of savings and budgeting concepts for Eastside Prep Personal Finance course. Good luck!
Questions and Answers
- 1.
A budget surplus occurs when income is greater than expenses.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
A budget surplus occurs when income is greater than expenses. This means that there is more money coming in than going out, resulting in a positive balance.Rate this question:
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- 2.
If you deposit $200 into a savings account with an interest rate of 1% for 3 years, how much simple interest can you brag that you will earn after three years?
- A.
$1
- B.
$5
- C.
$6
- D.
$25
Correct Answer
C. $6Explanation
The correct answer is $6. Simple interest is calculated by multiplying the principal amount (in this case, $200) by the interest rate (1%) and the time period (3 years). Therefore, the simple interest earned after three years would be $6.Rate this question:
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- 3.
A student completing their college education at a four-year college rather than just completing their high school education can expect to earn how much more over a 40 year career?
- A.
$200,000
- B.
$500,000
- C.
$800,000
- D.
$5,000,000
Correct Answer
C. $800,000Explanation
Completing a four-year college education instead of just high school education can lead to earning $800,000 more over a 40-year career. This suggests that the additional education and skills acquired through college education can significantly increase earning potential in the long run.Rate this question:
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- 4.
What is interest?
- A.
When prices increase as time goes by
- B.
The money you pay as a fee when you use a debit card
- C.
The money that a bank pays you for depositing your money in their bank
- D.
Total amount of money in a bank
Correct Answer
C. The money that a bank pays you for depositing your money in their bankExplanation
Interest is the money that a bank pays you for depositing your money in their bank. When you deposit money in a bank, the bank uses that money to lend it to other customers or invest it. In return for using your money, the bank pays you interest, which is a percentage of the amount you have deposited. This is a way for the bank to incentivize people to save money and keep it in their bank. The more money you deposit and the longer you keep it in the bank, the more interest you can earn.Rate this question:
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- 5.
Which of these savings vehicles would work best today if you didn't need to access the money for a number of years AND wanted the highest interest rate possible AND expected that interest rates would fall in the future
- A.
Money Market Savings Account
- B.
Certificate of Deposit (CD)
- C.
Simple Savings Account
- D.
None of the above
Correct Answer
B. Certificate of Deposit (CD)Explanation
A Certificate of Deposit (CD) would work best in this scenario because it offers a higher interest rate compared to a Money Market Savings Account or a Simple Savings Account. Additionally, since the money is not needed for a number of years and it is expected that interest rates will fall in the future, locking in a fixed interest rate with a CD would ensure that the account holder continues to earn the higher interest rate even if rates decrease in the future.Rate this question:
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- 6.
Which combination of interest rates and fees are the better deal assuming you have an account with an average balance of $500?
- A.
An account with 10% annual interest rate and $5/month in fees
- B.
An account with 2% annual interest rate and no fees
- C.
The two deals listed above are equivalent
Correct Answer
B. An account with 2% annual interest rate and no feesExplanation
The better deal would be an account with a 2% annual interest rate and no fees. With an average balance of $500, a 10% annual interest rate would only earn $50 in interest for the year. However, with $5/month in fees, the account would incur $60 in fees for the year, resulting in a net loss of $10. On the other hand, an account with a 2% annual interest rate and no fees would earn $10 in interest for the year, resulting in a net gain of $10. Therefore, the account with a 2% interest rate and no fees is the better deal.Rate this question:
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- 7.
The FDIC (Federal Depository Insurance Corporation) insures deposits up to what level, should your bank go out of business?
- A.
$500
- B.
$250,000
- C.
$1,000,000
- D.
$5,000,0000
Correct Answer
B. $250,000Explanation
The FDIC (Federal Deposit Insurance Corporation) insures deposits up to $250,000 should your bank go out of business. This means that if your bank fails, you will be reimbursed up to $250,000 for the money you had in your accounts. This insurance provides protection and reassurance to depositors, ensuring that their money is safe even in the event of a bank failure.Rate this question:
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- 8.
Chris works part-time at the Jamba Juice. He gets paid $8/hour and plans to work 10 hours per week throughout the year (assume he works for 50 weeks) as well as a free smoothie for every shift. He pays federal and state taxes equal to 20%. His GROSS PAY for the year is equal to (do not include value of the smoothies):
- A.
$80
- B.
$3,000
- C.
$3,200
- D.
$4,000
Correct Answer
D. $4,000Explanation
Chris works 10 hours per week for 50 weeks, which totals to 500 hours worked in a year. Since he gets paid $8 per hour, his gross pay for the year is 500 hours x $8/hour = $4,000. This calculation does not include the value of the smoothies he receives for every shift.Rate this question:
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- 9.
True or False. It always makes sense to select the savings account with the highest interest rate without considering any other factors.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
It is not always wise to select the savings account with the highest interest rate without considering other factors. Other factors such as fees, minimum balance requirements, and accessibility should also be taken into consideration. A savings account with a high interest rate might have hidden fees or require a large minimum balance, which could ultimately result in less overall savings. Therefore, it is important to consider all factors before making a decision.Rate this question:
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- 10.
Which of the following factors would NOT be considered in selecting a simple savings account?
- A.
Interest Rate
- B.
Term
- C.
Fees
- D.
Minimum balance
Correct Answer
B. TermExplanation
In selecting a simple savings account, the term refers to the length of time the money will be deposited in the account before it can be withdrawn without penalty. However, the term is not a factor that would typically be considered in selecting a simple savings account. Factors such as interest rate, fees, and minimum balance are more commonly taken into account when choosing a savings account.Rate this question:
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- 11.
When interest rates are as low as they are now (recall that Bank of America is offering a 0.01% interest rate):
- A.
It is bad for savers and borrowers
- B.
It is good for savers and bad for borrowers
- C.
It is bad for borrowers and good for savers
- D.
It is good for borrowers and bad for savers
Correct Answer
D. It is good for borrowers and bad for saversExplanation
When interest rates are low, it is good for borrowers because they can borrow money at a lower cost. This means they can take out loans or credit at a lower interest rate, saving them money in the long run. On the other hand, it is bad for savers because they earn less interest on their savings. With low interest rates, the return on savings is minimal, reducing the potential for growth or income from savings accounts or investments. Therefore, the statement "it is good for borrowers and bad for savers" accurately reflects the impact of low interest rates.Rate this question:
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- 12.
Based on the rule of 72, a savings account earning 6% per year would double after...
- A.
6 years
- B.
8 years
- C.
12 years
- D.
18 years
Correct Answer
C. 12 yearsExplanation
According to the rule of 72, the number 72 is divided by the interest rate to determine the number of years it takes for an investment to double. In this case, the interest rate is 6%, so 72 divided by 6 equals 12. Therefore, it would take 12 years for a savings account earning 6% per year to double.Rate this question:
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- 13.
When it comes to collecting information to make a decision about a specific financial product, watching commercials and listening to your friend's recommendations are all that you need to know.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The given statement is incorrect. When making a decision about a specific financial product, relying solely on commercials and friends' recommendations may not provide accurate or comprehensive information. It is important to conduct thorough research, consider multiple sources of information, and consult with professionals to make an informed decision.Rate this question:
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- 14.
What would be the BALANCE of your savings account after three months if the savings account had an annual interest rate of 6% and you started with principal of $500?
- A.
$30
- B.
$15
- C.
$507.50
- D.
$530.00
Correct Answer
C. $507.50Explanation
To calculate the balance after three months, we need to calculate the interest earned and add it to the principal. The formula to calculate the interest is: Interest = Principal * Rate * Time. In this case, the principal is $500, the rate is 6% (or 0.06), and the time is 3 months (or 0.25 years). So, the interest earned is $500 * 0.06 * 0.25 = $7.50. Adding this to the principal, we get $500 + $7.50 = $507.50. Therefore, the balance of the savings account after three months would be $507.50.Rate this question:
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- 15.
Which of the following items would be considered as income (CHECK ALL THE BOXES THAT APPLY)?
- A.
Money received as birthday gifts from relatives
- B.
Money spent on school supplies
- C.
Money spent to go to the movies
- D.
Money earned from a part-time job
- E.
Allowance
Correct Answer(s)
A. Money received as birthday gifts from relatives
D. Money earned from a part-time job
E. AllowanceExplanation
Money received as birthday gifts from relatives, money earned from a part-time job, and allowance would be considered as income. These are all sources of money that an individual receives, whether it is as a gift, payment for work, or a regular allowance. Money spent on school supplies and money spent to go to the movies are expenses, not income.Rate this question:
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- 16.
Which of the following is a "want" not a need?
- A.
Food
- B.
Medicine
- C.
Housing
- D.
Car
- E.
Utilities
Correct Answer
D. CarExplanation
A car is considered a "want" because it is not essential for survival or meeting basic needs. While it may provide convenience and transportation, it is not necessary for survival like food, medicine, housing, or utilities. People can still meet their basic needs without owning a car, but it may enhance their quality of life and provide additional benefits.Rate this question:
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- 17.
To successfully open a savings account, which ONE of the items below are NOT required:
- A.
State issued ID (Driver's license or State ID)
- B.
Evidence of a Job
- C.
Your Social Security number
- D.
If under 18, you must have a guardian sign with you
- E.
A deposit to open the account
Correct Answer
B. Evidence of a JobExplanation
To successfully open a savings account, evidence of a job is not required. The other items listed, such as a state-issued ID, social security number, having a guardian sign if under 18, and a deposit to open the account, are all typically required when opening a savings account. However, evidence of a job is not necessary as it is not directly related to the process of opening a savings account.Rate this question:
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- 18.
When putting together your personal budget, you find that your budget is in deficit. Indicate the actions that you need to take to balance your budget.
- A.
Increase your income and expenses by the same amount
- B.
Increase your income by an amount greater than your deficit
- C.
Increase your expenses by an amount greater than your deficit
- D.
Increase the spending on your wants
Correct Answer
B. Increase your income by an amount greater than your deficitExplanation
To balance your budget when it is in deficit, you need to increase your income by an amount greater than your deficit. This means finding ways to earn more money through additional sources of income or by increasing your current income. By doing so, you will have enough funds to cover your expenses and eliminate the deficit in your budget.Rate this question:
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- 19.
The Ally Bank Pony commercial is a good example of why it is so important to ask questions when making a decision about a bank's products.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The explanation for the given correct answer is that the Ally Bank Pony commercial serves as a good example because it highlights the importance of asking questions when deciding on a bank's products. This implies that the commercial emphasizes the need for consumers to gather information and clarify any doubts they may have before making a decision.Rate this question:
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- 20.
You are considering opening a savings account and are considering two options. Bank A is in NOT in FDIC program, has interest rate of 5%, minimum deposit of $25 and fees that are competitive to other banks. Bank B is in the FDIC program, has interest rate of 0.01%, minimum deposit of $50 and competitive fees. If you had to choose one of the two banks, which would you choose?
- A.
Bank A
- B.
Bank B
- C.
Bank A and Bank B are the same
Correct Answer
B. Bank BExplanation
Bank B is the better option because it is in the FDIC program, which means that deposits are insured up to $250,000 per depositor. This provides a level of security and protection for your savings. Although Bank B has a lower interest rate of 0.01%, it still offers competitive fees and a higher minimum deposit of $50, which may encourage better saving habits.Rate this question:
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- 21.
Your friend tells you that she can double her money in a savings account in 24 years. Based on Rule of 72, what do you estimate to be the interest rate on her savings account?
- A.
1.5%
- B.
2%
- C.
3%
- D.
6%
Correct Answer
C. 3%Explanation
Based on the Rule of 72, the interest rate is estimated by dividing 72 by the number of years it takes to double the money. In this case, it takes 24 years to double the money, so the estimated interest rate would be 72/24 = 3%.Rate this question:
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- 22.
What was the MOST important lesson of the Bank Manager role play, when a volunteer came to the front of the class to discuss opening a savings account with me?
- A.
Savings accounts have low interest rates today
- B.
Bank managers are usually straightforward in describing their savings products
- C.
When pressured to sign an application to open an account (or buy a financial product), it is best to ask for time to review the materials and to walk away.
- D.
It is best not to ask questions but to just let the bank manager describe their savings products.
Correct Answer
C. When pressured to sign an application to open an account (or buy a financial product), it is best to ask for time to review the materials and to walk away.Explanation
The most important lesson of the Bank Manager role play is to ask for time to review the materials and walk away when pressured to sign an application or buy a financial product. This suggests that it is important to take the time to fully understand the terms and conditions of any financial agreement before committing to it. It emphasizes the importance of not making impulsive decisions and instead making informed choices after careful consideration.Rate this question:
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- 23.
Which of these factors will have an impact on both the type of job and the salary you receive in your first job out of college?
- A.
College you graduated from
- B.
Performance at college (activities, GPA, leadership)
- C.
College major (e.g., business, psychology, etc.)
- D.
Summer internships
- E.
All of the above
Correct Answer
E. All of the aboveExplanation
All of the factors listed - the college you graduated from, performance at college, college major, and summer internships - can have an impact on both the type of job and the salary you receive in your first job out of college. The reputation and prestige of the college you graduated from can influence employers' perception of your qualifications. Your performance at college, including activities, GPA, and leadership roles, can demonstrate your skills and dedication. Your college major can determine the specific career paths available to you and the demand for professionals in that field. Summer internships can provide valuable work experience and make you more competitive in the job market.Rate this question:
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- 24.
The VISA Commercial we watched in class:
- A.
Was an example of a brand-building commercial to get consumers committed to the VISA brand.
- B.
Told the story of an Olympic athlete who suffered an injury during his sprint event.
- C.
Provided information about the interest rate on VISA credit cards.
- D.
A and B only
Correct Answer
D. A and B onlyExplanation
The correct answer is A and B only because the VISA Commercial we watched in class was an example of a brand-building commercial to get consumers committed to the VISA brand. It told the story of an Olympic athlete who suffered an injury during his sprint event, which helps create an emotional connection with the viewers. It did not provide any information about the interest rate on VISA credit cards, so option C is incorrect.Rate this question:
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- 25.
Which statement about the savings rate in the U.S. is TRUE?
- A.
The savings rate is high enough that most people can retire by the age of 50.
- B.
People in the US generally save too much.
- C.
With the high interest rates on savings accounts today, the savings rate is extremely high.
- D.
The savings rate is typically below 10% in the US and today stands at about 3.5%, which will make it difficult for most people to save enough for retirement.
Correct Answer
D. The savings rate is typically below 10% in the US and today stands at about 3.5%, which will make it difficult for most people to save enough for retirement.Explanation
The correct answer states that the savings rate in the U.S. is typically below 10% and currently stands at about 3.5%. This implies that most people are not saving enough for retirement, making it difficult for them to save enough money for their future.Rate this question:
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- 26.
Isaiah works for the summer at a technology company and has a salary for the summer of $3,000. After federal and state taxes and Social Security/Medicare taxes are deducted, his take-home pay is $2,500. Which of the statements below is CORRECT?
- A.
His gross pay is $2,500 and net pay is $3,000
- B.
His gross pay is $3,000 and net pay is $2,500
- C.
His gross and net pay are $3,000
- D.
His net pay and gross pay are $2,500
Correct Answer
B. His gross pay is $3,000 and net pay is $2,500Explanation
The gross pay refers to the total amount of money earned before any deductions are made, such as taxes. In this case, Isaiah's gross pay is stated as $3,000, which means that this is the total amount he earned before any taxes were deducted. On the other hand, the net pay refers to the amount of money received after all deductions have been made. In this case, Isaiah's net pay is stated as $2,500, which means that this is the amount he received after federal and state taxes and Social Security/Medicare taxes were deducted. Therefore, the correct statement is that his gross pay is $3,000 and net pay is $2,500.Rate this question:
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- 27.
Which of the statements below would be considered good advice for creating a budget?
- A.
Set aside money for Savings FIRST
- B.
Be sure that your WANTS are met first before you set aside money for your NEEDS.
- C.
Keep your expenses less than your income so that your budget will be in surplus.
- D.
Be sure to compare your budget plan with your actual spending so that you can determine if you are staying within your budget.
- E.
A, C and D only
- F.
All of the above
Correct Answer
E. A, C and D onlyExplanation
The given correct answer, A, C and D only, is the best advice for creating a budget. Setting aside money for savings first is important to prioritize financial security. Keeping expenses less than income ensures a surplus in the budget, which allows for savings and emergency funds. Comparing the budget plan with actual spending helps to identify any discrepancies and make necessary adjustments to stay within the budget. This combination of advice promotes responsible financial management and helps individuals achieve their financial goals.Rate this question:
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- 28.
True or False. It is not necessary to track your income/expenses in a Check Register since you can always just check your account balance at an ATM or while visiting the bank.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
It is necessary to track your income/expenses in a Check Register even though you can check your account balance at an ATM or while visiting the bank. Tracking your income and expenses in a Check Register allows you to have a detailed record of your financial transactions, which can help you budget effectively, identify any discrepancies or errors, and plan for future expenses. Simply relying on checking your account balance at an ATM or bank may not provide you with the same level of detail and organization that a Check Register can offer.Rate this question:
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- 29.
When banks provide information about savings accounts, they typically quote the interest rates they offer (e.g. 1%) on a...
- A.
Per day basis
- B.
Per month basis
- C.
Per six month basis
- D.
Per year basis
Correct Answer
D. Per year basisExplanation
Banks typically quote the interest rates they offer on a per year basis when providing information about savings accounts. This means that the interest rate mentioned is the annual percentage rate (APR) that will be applied to the savings account balance over the course of a year. This allows customers to easily compare different savings accounts and understand how much interest they can expect to earn over a year.Rate this question:
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- 30.
When making a decision about a financial product (loan, savings account, credit card) it is best to follow a process which includes:
- A.
Comparing products based on the factors you think are most important
- B.
Doing research to learn more about each of the products
- C.
Figuring out what factors are most important in making the decision
- D.
Making a decision based only on what your friend recommends
- E.
A, B and C only
- F.
All of the above
Correct Answer
E. A, B and C onlyExplanation
When making a decision about a financial product, it is important to follow a process that includes comparing products based on the factors you think are most important, doing research to learn more about each of the products, and figuring out what factors are most important in making the decision. This ensures that you make an informed decision based on your own needs and preferences rather than relying solely on someone else's recommendation. By considering these factors and doing your own research, you can choose the product that best suits your financial goals and circumstances.Rate this question:
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- 31.
True or False. When looking at which college majors earned the highest starting salaries in 2013, it is clear that students who had technical skills gained from STEM majors (Science, Technology, Engineering and Math) had most of the positions in the "top 10 list" and were most highly compensated by employers.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Students who had technical skills gained from STEM majors (Science, Technology, Engineering, and Math) had most of the positions in the "top 10 list" and were most highly compensated by employers when looking at which college majors earned the highest starting salaries in 2013.Rate this question:
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- 32.
Which of the statements below are TRUE about setting up your checking account so that bills are automatically paid every month (e.g., rent, car payments, student loan payments)?
- A.
It can be a good idea since it will ensure your bills are paid on time and help you avoid late fees.
- B.
It can be dangerous if you carry low balances in your account since it could lead to a "bounced" payment if there is not enough money in your account.
- C.
It is too complicated and should be avoided at all costs.
- D.
Both A and B
Correct Answer
D. Both A and BExplanation
Setting up your checking account for automatic bill payments can be a good idea because it ensures timely payments and helps avoid late fees. However, it can also be dangerous if you have low balances, as it may result in bounced payments if there isn't enough money in your account. Therefore, both statements A and B are true.Rate this question:
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- 33.
Writing a check for an amount that is greater than the balance in your checking account can have the following consequences:
- A.
You will be charged fees by the bank for "bouncing a check."
- B.
It can have a negative impact on your credit score.
- C.
You may be charged fees by the business receiving the "bounced check" since it will often lead to your payment being late.
- D.
All of the above
Correct Answer
D. All of the aboveExplanation
Writing a check for an amount that is greater than the balance in your checking account can have several consequences. Firstly, the bank will charge fees for "bouncing a check," which means that the check cannot be processed due to insufficient funds. This can result in additional financial burden for the account holder. Secondly, this situation can have a negative impact on your credit score because it reflects poorly on your financial responsibility. Lastly, the business or individual receiving the "bounced check" may also charge fees since the late payment caused by the insufficient funds can disrupt their cash flow. Therefore, all of the mentioned consequences can occur when writing a check with insufficient funds.Rate this question:
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- 34.
Banks are required to provide a Truth in Savings Disclosure to all new savings account holders. This disclosure includes information about the fees the bank charges on their savings accounts.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Banks are indeed required to provide a Truth in Savings Disclosure to all new savings account holders. This disclosure includes information about the fees that the bank charges on their savings accounts. Therefore, the statement is true.Rate this question:
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