Pf2014 Quiz 1: Investing, Saving, Budgeting

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Pf2014 Quiz 1: Investing, Saving, Budgeting - Quiz

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. True
    Explanation
    A budget surplus means that the income exceeds the expenses, indicating that there is more money coming in than going out. This can be seen as a positive financial situation as it allows for savings or investments.

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  • 2. 

    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. $4,000
    Explanation
    Chris works 10 hours per week for 50 weeks, which equals 500 hours in a year. He gets paid $8 per hour, so his total earnings for the year would be $8/hour * 500 hours = $4,000. This is his gross pay before taxes and does not include the value of the free smoothies he receives.

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  • 3. 

    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. False
  • 4. 

    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. False
    Explanation
    The statement suggests that watching commercials and listening to friends' recommendations are sufficient for making decisions about financial products. However, this is not true as making informed financial decisions requires thorough research, understanding of the product, comparing different options, and considering individual financial goals and needs. Simply relying on commercials and friends' recommendations may lead to uninformed decisions and potential financial risks.

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  • 5. 

    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. $507.50
    Explanation
    After three months, the balance of the savings account can be calculated using the formula for compound interest: A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time in years. In this case, the principal is $500, the annual interest rate is 6%, n is 12 (compounded monthly), and t is 3/12 (three months). Plugging in these values, we get A = 500(1 + 0.06/12)^(12*(3/12)) = $507.50. Therefore, the balance of the savings account after three months would be $507.50.

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  • 6. 

    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 Job
    Explanation
    To successfully open a savings account, evidence of a job is not required. This means that you do not need to provide proof of employment in order to open a savings account. However, you will still need to provide a state issued ID (such as a driver's license or state ID), your Social Security number, if under 18 you must have a guardian sign with you, and a deposit to open the account.

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  • 7. 

    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 deficit
    Explanation
    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, such as getting a second job or finding ways to increase your income through your current job. By increasing your income by a greater amount than your deficit, you will be able to cover your expenses and bring your budget back into balance.

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  • 8. 

    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. True
    Explanation
    The commercial mentioned in the question, the Ally Bank Pony commercial, serves as a good example of the importance of asking questions when making a decision about a bank's products. This implies that the statement "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" is true.

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  • 9. 

    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 B
    Explanation
    Bank B should be chosen because it is in the FDIC program, which provides insurance for deposits up to $250,000 per depositor. This means that if the bank were to fail, the depositor's money would be protected. Although Bank B has a lower interest rate compared to Bank A, the peace of mind provided by the FDIC insurance outweighs the slightly higher interest rate offered by Bank A. Additionally, Bank B has competitive fees and a slightly higher minimum deposit requirement, but these factors are not significant enough to outweigh the benefits of FDIC insurance.

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  • 10. 

    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, which states that the number of years it takes for an investment to double is approximately equal to 72 divided by the interest rate, we can estimate the interest rate on her savings account. In this case, her friend claims to double her money in 24 years. Therefore, 72 divided by 24 equals 3. This means that the interest rate on her savings account is estimated to be 3%.

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  • 11. 

    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, as it will be difficult to accumulate sufficient funds with such low savings rates.

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  • 12. 

    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 $2,500
  • 13. 

    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 basis
    Explanation
    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 applicable for a period of one year. This allows customers to easily compare and understand the potential earnings on their savings over a longer period of time. By providing the interest rate on a per year basis, banks ensure transparency and enable customers to make informed decisions about their savings.

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  • 14. 

    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.

      False

    • B.

      True

    Correct Answer
    B. True
    Explanation
    Banks are indeed 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. Therefore, the statement is true.

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  • 15. 

    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?WebRep currentVote  noRatingnoWeight           

    • A.

      $1

    • B.

      $5

    • C.

      $6

    • D.

      $25

    Correct Answer
    C. $6
    Explanation
    To calculate simple interest, we use the formula: Interest = Principal * Rate * Time. In this case, the principal is $200, the rate is 1%, and the time is 3 years. Plugging these values into the formula, we get: Interest = $200 * 0.01 * 3 = $6. Therefore, after three years, you can brag that you will earn $6 in simple interest.

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  • 16. 

    A student completing their college education at a four-year college can expect to earn how much more over a typical forty year career than a student with just a high school degree?   WebRep currentVote  noRatingnoWeight           

    • A.

      $50,000

    • B.

      $250,000

    • C.

      $900,000

    • D.

      $5,000,000

    Correct Answer
    C. $900,000
    Explanation
    A student completing their college education at a four-year college can expect to earn $900,000 more over a typical forty year career than a student with just a high school degree. This suggests that obtaining a college degree significantly increases earning potential and can lead to higher salaries and better job opportunities in the long run.

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  • 17. 

    What is earned interest?WebRep currentVote  noRatingnoWeight           

    • 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 bank
    Explanation
    Earned interest refers to the money that a bank pays you for depositing your money in their bank. This is a form of income that is earned on the amount of money you have deposited in a bank account. The bank pays you a certain percentage of interest on your deposit as a way to incentivize you to keep your money with them. The more money you deposit and the longer you keep it in the bank, the more interest you can earn.

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  • 18. 

    Which of these savings vehicles would work best today if you don't need to access the money for a number of years AND wanted the highest interest rate possible? WebRep currentVote  noRatingnoWeight           

    • A.

      Money Market Savings Account

    • B.

      Certificate of Deposit (CD)

    • C.

      Simple Savings Account

    • D.

      None of the options listed

    Correct Answer
    B. Certificate of Deposit (CD)
    Explanation
    A Certificate of Deposit (CD) would work best in this situation because it offers a higher interest rate compared to other savings vehicles. Additionally, since the money is not needed for a number of years, the fixed term of a CD aligns well with the time frame. By locking in the funds for a specific period, the bank is able to offer a higher interest rate as they have guaranteed access to the money for that duration. This makes a CD a suitable choice for individuals who are looking for a higher return on their savings and do not need immediate access to the funds.

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  • 19. 

    You are comparing two savings accounts based on their interest you would earn and the fees they charge.  Which combination of interest rates and fees are the better deal assuming you have a savings account with an average balance of $500?  (Hint:  Using a one year period, determine the balance that you would have at year-end at Bank A and Bank B).  WebRep currentVote  noRatingnoWeight           

    • A.

      Bank A offers you a savings account with a 10% annual interest rate and $5/month in fees

    • B.

      Bank B offers you a savings account with 2% annual interest rate and no fees

    • C.

      The two deals listed above are equivalent

    Correct Answer
    B. Bank B offers you a savings account with 2% annual interest rate and no fees
    Explanation
    Bank B is the better deal because it offers a higher interest rate compared to Bank A and does not charge any fees. With an average balance of $500, at the end of the year, Bank A would provide an interest of 10% on $500, which is $50. However, it would also deduct $5 per month in fees, resulting in a total deduction of $60. On the other hand, Bank B would provide an interest of 2% on $500, which is $10, without any fees. Therefore, Bank B would leave the account holder with a higher net balance at the end of the year compared to Bank A.

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  • 20. 

    When interest rates are as low as they are now for both savings accounts and loans (recall that Bank of America is offering a 0.01% interest rate on a savings account and interest rates on home loans are extremely low too): WebRep currentVote  noRatingnoWeight           

    • A.

      It is bad for savers (who earn interest) and borrowers (who pay interest)

    • B.

      It is good for savers (who earn interest) and bad for borrowers (who pay interest)

    • C.

      It is bad for borrowers (who pay interest) and good for savers (who earn interest)

    • D.

      It is good for borrowers (who pay interest) and bad for savers (who earn interest)

    Correct Answer
    D. It is good for borrowers (who pay interest) and bad for savers (who earn interest)
    Explanation
    When interest rates are low, it is beneficial for borrowers because they can obtain loans at lower interest rates, resulting in lower monthly payments and potentially saving money in the long run. On the other hand, it is not advantageous for savers as they earn less interest on their savings accounts, reducing their potential earnings and making it harder to grow their savings over time. Therefore, low interest rates are good for borrowers but bad for savers.

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  • 21. 

    Based on the rule of 72, a savings account earning 6% per year would allow you to double your money after...WebRep currentVote  noRatingnoWeight           

    • A.

      6 years

    • B.

      8 years

    • C.

      12 years

    • D.

      18 years

    Correct Answer
    C. 12 years
    Explanation
    According to the rule of 72, you can estimate the time it takes for an investment to double by dividing 72 by the annual interest rate. In this case, dividing 72 by 6 gives us 12. Therefore, it would take 12 years for the savings account earning 6% per year to double your money.

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  • 22. 

    When creating a budget, which of the following items would be considered as INCOME (CHECK ALL THE BOXES THAT APPLY)?WebRep currentVote  noRatingnoWeight           

    • 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. Allowance
    Explanation
    Income refers to money that is earned or received. In the context of creating a budget, income is the money that is available to allocate towards expenses. In this question, the items that would be considered as income are: money received as birthday gifts from relatives, money earned from a part-time job, and allowance. These are all sources of money that can be used to fund expenses and should be taken into account when creating a budget.

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  • 23. 

    Which of the following is a "want" not a need?WebRep currentVote  noRatingnoWeight           

    • A.

      Food

    • B.

      Medicine

    • C.

      Housing

    • D.

      A New Sports Car

    • E.

      Utilities

    Correct Answer
    D. A New Sports Car
    Explanation
    A new sports car is considered a "want" rather than a "need" because it is not necessary for survival or basic functioning. While food, medicine, housing, and utilities are essential for meeting basic human needs, a new sports car is a luxury item that is not required for basic living.

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  • 24. 

    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 Bill?WebRep currentVote  noRatingnoWeight           

    • 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 that 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. This suggests that it is important to take the time to fully understand the terms and conditions of any financial product before committing to it, rather than making a hasty decision under pressure.

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  • 25. 

    Which of the statements below would be considered good advice for creating a budget (SELECT ALL ANSWERS THAT ARE CORRECT)?WebRep currentVote  noRatingnoWeight           

    • 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.

      Only consider what to save after your wants and needs have been taken care of first.

    Correct Answer(s)
    A. Set aside money for Savings FIRST
    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.
    Explanation
    The correct answer is to set aside money for savings first, keep your expenses less than your income to have a surplus, and compare your budget plan with your actual spending to stay within your budget. This advice is considered good because it promotes financial stability and responsible money management. By prioritizing savings, individuals can build an emergency fund and work towards their long-term financial goals. Keeping expenses lower than income ensures that there is room for savings and prevents debt accumulation. Regularly comparing the budget plan with actual spending helps identify any discrepancies and allows for adjustments to stay on track.

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  • 26. 

    When making a decision about a financial product (loan, savings account, credit card) it is best to follow a process which includes (SELECT ALL THE ANSWERS THAT ARE CORRECT):WebRep currentVote  noRatingnoWeight           

    • A.

      Comparing products based on the factors you think are most important

    • B.

      Doing research to learn more about each of the products

    • C.

      Making a decision based only on what your friend or family member recommends

    • D.

      Figuring out the factors that are important to you with the product you are considering

    • E.

      Reading the fine print of any disclosures so you understand all the fees and terms of your account

    Correct Answer(s)
    A. Comparing products based on the factors you think are most important
    B. Doing research to learn more about each of the products
    D. Figuring out the factors that are important to you with the product you are considering
    E. Reading the fine print of any disclosures so you understand all the fees and terms of your account
    Explanation
    When making a decision about a financial product, it is important to follow a process that includes comparing products based on the factors that are most important to you. This allows you to evaluate which product aligns best with your needs and preferences. Additionally, doing research on each of the products helps you gather information and gain a better understanding of their features and benefits. It is crucial to figure out the factors that are important to you with the product you are considering, as this ensures that your decision is based on your own priorities. Lastly, reading the fine print of any disclosures is essential to fully comprehend all the fees and terms associated with the account, allowing you to make an informed decision.

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  • 27. 

    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."WebRep currentVote  noRatingnoWeight           

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Students who had technical skills gained from STEM majors had most of the positions in the "top 10 list" of college majors with the highest starting salaries in 2013. This suggests that majors in science, technology, engineering, and math tend to lead to higher paying jobs right after graduation.

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  • 28. 

    Writing a check for an amount that is greater than the balance in your checking account can have the following consequences (CHECK ALL THAT APPLY):WebRep currentVote  noRatingnoWeight           

    • A.

      You will be charged fees by the bank for "bouncing a check."

    • B.

      The bank will pay you interest for your deposit.

    • C.

      You may be charged fees by the business receiving the "bounced check" since it will often lead to your payment being late.

    • D.

      The bank is required by law to cover the check even if you don't have enough money in your account

    Correct Answer(s)
    A. You will be charged fees by the bank for "bouncing a check."
    C. You may be charged fees by the business receiving the "bounced check" since it will often lead to your payment being late.
    Explanation
    If you write a check for an amount that is greater than the balance in your checking account, you will be charged fees by the bank for "bouncing a check." This means that the bank will not honor the check and it will be returned to the recipient unpaid. Additionally, you may be charged fees by the business receiving the "bounced check" since it will often lead to your payment being late.

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  • 29. 

    You purchase one share of Wal-Mart stock on January 1, 2014 for $77.35.  You decide to sell the stock on March 1, 2014 when the stock price was $75.03.  The return on your Wal-Mart investment is WebRep currentVote  noRatingnoWeight           

    • A.

      +3.0%

    • B.

      -3.0%

    • C.

      -2.3%

    • D.

      +2.3%

    • E.

      +8%

    Correct Answer
    B. -3.0%
    Explanation
    The return on the Wal-Mart investment is calculated by taking the difference between the selling price and the purchase price, and dividing it by the purchase price. In this case, the selling price is $75.03 and the purchase price is $77.35. The difference between the two prices is -$2.32. Dividing this by the purchase price gives us -0.030 or -3.0%. This means that the investment has resulted in a 3.0% loss.

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  • 30. 

    You are putting together your first budget after graduating from college.  Your take-home or net pay from your job will be $2,500 per month.  You estimate your monthly costs to be rent of $800, car payment of $350, car insurance of $150, car maintenance of $50, entertainment of $500, food expense of $250, mobile phone of $100, cable bill of $75, personal car expenses of $100 and other expense of $300.  How would you describe your budget after analyzing all of your income and expenses? WebRep currentVote  noRatingnoWeight           

    • A.

      You have a surplus of $175

    • B.

      You have a deficit of $175

    • C.

      You have a balanced budget

    • D.

      You have a deficit of $2,675

    • E.

      You have a surplus of $2,500

    Correct Answer
    B. You have a deficit of $175
    Explanation
    Based on the given information, the person's monthly income is $2,500 and their total expenses amount to $2,675. Since the expenses exceed the income, there is a deficit of $175.

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  • 31. 

    You are considering your investment options.  Your choices are to buy stock in Facebook, Google, Nike, McDonalds or the S&P500 Index Fund.  Which investment will provide you with a diversified investment and therefore lower your risk?  WebRep currentVote  noRatingnoWeight           

    • A.

      Facebook

    • B.

      Google

    • C.

      Nike

    • D.

      McDonalds

    • E.

      S&P500 Index Fund

    Correct Answer
    E. S&P500 Index Fund
    Explanation
    Investing in the S&P500 Index Fund will provide a diversified investment and lower your risk. The S&P500 Index Fund is a type of mutual fund or exchange-traded fund (ETF) that tracks the performance of the S&P500 index, which consists of 500 of the largest publicly traded companies in the United States. By investing in this fund, you are essentially investing in a wide range of companies across various sectors, which helps to spread out your risk. This diversification can protect you from the potential negative impact of any single company's poor performance.

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  • 32. 

    You put $500 in a savings account with an interest rate of 10% per year (not a realistic rate in today's world).  Assuming that the bank offers you the benefit of compound interest, what would the balance in your account be after 2 years?WebRep currentVote  noRatingnoWeight           

    • A.

      Less than $600

    • B.

      More than $600

    • C.

      Exactly $600

    • D.

      $550

    • E.

      $100

    Correct Answer
    B. More than $600
    Explanation
    After 2 years, the balance in the savings account would be more than $600 because compound interest is being applied. Compound interest means that the interest earned in each period is added to the principal amount, and then interest is calculated on the new total. In this case, the interest rate is 10% per year, so after the first year, the balance would be $500 + ($500 * 10%) = $550. Then, in the second year, the interest would be calculated on the new balance of $550, resulting in an amount greater than $600.

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  • 33. 

    When comparing investment choices, which statements below are TRUE (SELECT ALL THAT ARE TRUE)?WebRep currentVote  noRatingnoWeight           

    • A.

      Many investors get excited about investing in companies that have high earnings growth.

    • B.

      Investing in the stock market carries NO risk of losing money.

    • C.

      Over the long term, the stock market has averaged returns of 8-9% per year.

    • D.

      When it comes to investing, past performance of an investment is NO guarantee of how the stock will perform in the future.

    • E.

      Over the past 50-60 years, savings accounts have provided higher returns than investing in the stock market.

    Correct Answer(s)
    A. Many investors get excited about investing in companies that have high earnings growth.
    C. Over the long term, the stock market has averaged returns of 8-9% per year.
    D. When it comes to investing, past performance of an investment is NO guarantee of how the stock will perform in the future.
    Explanation
    The statement "Many investors get excited about investing in companies that have high earnings growth" is true because investors are often attracted to companies that show potential for high profits and growth. The statement "Over the long term, the stock market has averaged returns of 8-9% per year" is also true as historical data has shown that the stock market has provided average annual returns within this range. Lastly, the statement "When it comes to investing, past performance of an investment is NO guarantee of how the stock will perform in the future" is true because the performance of stocks can vary and is not solely dependent on past performance.

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  • 34. 

    You have $25 to open a savings account.   You are most interested in having easy access to your money and finding an account type that has low minimum balance requirements.  You are less interested in earning a high interest rate.  What type of account would you choose?WebRep currentVote  noRatingnoWeight           

    • A.

      Money Market account

    • B.

      Regular savings account

    • C.

      Certificate of Deposit

    • D.

      Stock index fund like the S&P500 Fund

    Correct Answer
    B. Regular savings account
    Explanation
    A regular savings account would be the best choice in this scenario because it offers easy access to the money and typically has low minimum balance requirements. While it may not offer a high interest rate, the primary focus is on having easy access to the funds rather than earning a high return. A money market account may also offer easy access to the money but it may have higher minimum balance requirements. A certificate of deposit would have a higher interest rate but would lock the money away for a specific period of time, limiting access. A stock index fund like the S&P500 Fund would involve investing in the stock market and would not provide easy access to the money.

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  • 35. 

    You open a new bank account at Eastside Savings and see the FDIC stickers all around the bank branch.  You also go to the FDIC website to double check and see that the Eastside Savings branch you bank at is on the FDIC's list also.  Your savings balance is $500.  You hear on the radio that Eastside Savings is having trouble and may close down.  What would happen if Eastside Savings failed?WebRep currentVote  noRatingnoWeight           

    • A.

      You would lose all your money.

    • B.

      You could lose $250 since FDIC insurance only covers 50% of the money you have deposited.

    • C.

      You would receive all the money you have deposited at Eastside Savings since FDIC insurance covers accounts up to $250,000.

    • D.

      You would receive $250,000 since FDIC insurance provides each account at the bank with $250,000 regardless of how much they have deposited.

    Correct Answer
    C. You would receive all the money you have deposited at Eastside Savings since FDIC insurance covers accounts up to $250,000.
    Explanation
    If Eastside Savings were to fail, the FDIC insurance would cover the money you have deposited in your account up to $250,000. This means that you would receive all the money you have deposited at Eastside Savings, ensuring that you do not lose any of your funds. The FDIC stickers in the bank branch and the confirmation on the FDIC website further confirm the protection of your deposits.

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  • 36. 

    InvestmentPurchase PriceCurrent PriceReturn (%age)Apple$94.19$100.00?????McDonalds$73.15$65.00????Google$576.15$595.00????You have three stocks that you bought earlier this year.  You are looking at their current prices and curious as to how the stocks have performed relative to each other.  You are using their percentage return as your measurement tool.  Rank order the stocks from highest return to lowest return.  Remember to calculate the percentage return for each stock to arrive at the answer.  WebRep currentVote  noRatingnoWeight           

    • A.

      Google, Apple, McDonalds

    • B.

      Apple, Google, McDonalds

    • C.

      McDonalds, Apple, Google

    • D.

      Apple, McDonalds, Google

    • E.

      They all have the same percentage returns.

    Correct Answer
    B. Apple, Google, McDonalds
    Explanation
    The correct answer is Apple, Google, McDonalds. This is because the percentage return for Apple is calculated by subtracting the purchase price ($94.19) from the current price ($100.00) and then dividing by the purchase price, resulting in a return of approximately 6.19%. The percentage return for Google is calculated in the same way, with a purchase price of $576.15 and a current price of $595.00, resulting in a return of approximately 3.27%. The percentage return for McDonalds is calculated with a purchase price of $73.15 and a current price of $65.00, resulting in a negative return of approximately -11.12%. Therefore, Apple has the highest return, followed by Google, and then McDonalds.

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  • 37. 

    You received $10 in company X stock on the first day of class.  At the end of the summer session, you decide you want to sell your stock.  When you calculate the percentage return, you are excited to see that your stock has increased by 14.3%.  How much money will you receive in exchange for selling your stock?  WebRep currentVote  noRatingnoWeight           

    • A.

      $14.30

    • B.

      $1.43

    • C.

      $10.00

    • D.

      $11.43

    • E.

      $9.57

    Correct Answer
    D. $11.43
    Explanation
    If the stock has increased by 14.3%, it means that the value of the stock has increased by 14.3% of its original value. Since the original value of the stock was $10, the increase would be 14.3% of $10, which is $1.43. Therefore, when you sell your stock, you will receive the original value of $10 plus the increase of $1.43, resulting in a total of $11.43.

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  • 38. 

    You have a meeting with a bank manager to open a savings account and he says you can only ask one question of him.  For the sake of this question, assume that his answer to your question is truthful.  What would you ask?WebRep currentVote  noRatingnoWeight           

    • A.

      What is the interest I would earn with your regular savings account?

    • B.

      What are the fees on your regular savings account?

    • C.

      Is your bank FDIC insured?

    • D.

      Is it true that I get a toaster oven if I open a new savings account his month?

    Correct Answer
    C. Is your bank FDIC insured?
    Explanation
    The question "Is your bank FDIC insured?" is the best question to ask because it is important to ensure that your money will be protected in case the bank fails. The Federal Deposit Insurance Corporation (FDIC) provides insurance coverage for deposits in banks, up to $250,000 per depositor. By asking this question, you can verify the safety of your funds and make an informed decision about opening a savings account with the bank.

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  • 39. 

    Use this compound interest calculator to determine which saving strategy would provide the largest amount of money after 40 years.  For both strategies, assume Current Principal is 0, 40 years to grow, and Compound Interest 1 times annually.  Make Additions at the Start of Each Period for both strategies. Strategy A:  Invest $5,000 per year (so Annual Addition of $5,000) in a savings account which earns 2% interest rate per year.  Strategy B: Invest $2,000 per year (so Annual Addition of $2,000) in the stock market and earn an average interest rate of 7% per year.Which strategy produces the greatest amount of money after 40 years and why? WebRep currentVote  noRatingnoWeight           

    • A.

      Strategy A because you are investing more per year.

    • B.

      Strategy B because you have a higher interest rate and the effect of compounding is so strong with higher interest rates.

    • C.

      The two strategies are equal.

    • D.

      Strategy A because it has a lower interest rate.

    • E.

      Strategy B because you invested less money per year.

    Correct Answer
    B. Strategy B because you have a higher interest rate and the effect of compounding is so strong with higher interest rates.
    Explanation
    Strategy B produces the greatest amount of money after 40 years because it has a higher interest rate of 7% compared to Strategy A's 2%. The effect of compounding is stronger with higher interest rates, resulting in greater growth over time. Although Strategy A invests more money per year, the higher interest rate in Strategy B outweighs the difference in annual investments, leading to a larger final amount.

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  • 40. 

    Analyze the chart below.  Select ALL the statements below that are true. AnalyzeWebRep currentVote  noRatingnoWeight           

    • A.

      You can expect to earn more money if you have an Associates degree (2 years) as compared to a Bachelor's degree (4 years).

    • B.

      Excluding Doctoral degrees, as you increase your level of education you increase your potential earnings and reduce your risk of being unemployed.

    • C.

      If you go to college but don't earn a degree on average you still earn as much as a student with a bachelor's degree (degree from a four-year college).

    • D.

      When looking at median weekly earnings, those with a bachelor's degree earn about $412 more per week than a high school graduate.

    Correct Answer(s)
    B. Excluding Doctoral degrees, as you increase your level of education you increase your potential earnings and reduce your risk of being unemployed.
    D. When looking at median weekly earnings, those with a bachelor's degree earn about $412 more per week than a high school graduate.
    Explanation
    As you increase your level of education, excluding Doctoral degrees, you increase your potential earnings and reduce your risk of being unemployed. Additionally, when looking at median weekly earnings, individuals with a bachelor's degree earn about $412 more per week than those with only a high school diploma.

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  • 41. 

    Which of the following are important criteria when selecting a savings account? (CHECK ALL THAT APPLY)WebRep currentVote  noRatingnoWeight           

    • A.

      FDIC insurance

    • B.

      Quality of their commercials

    • C.

      Interest rate earned

    • D.

      Minimum deposit

    • E.

      Fees

    Correct Answer(s)
    A. FDIC insurance
    C. Interest rate earned
    D. Minimum deposit
    E. Fees
    Explanation
    When selecting a savings account, it is important to consider criteria such as FDIC insurance, interest rate earned, minimum deposit, and fees. FDIC insurance ensures that your deposits are protected up to a certain amount, providing security for your savings. The interest rate earned determines how much your savings will grow over time. The minimum deposit is the minimum amount required to open the account, which may vary depending on the institution. Lastly, fees can impact the overall profitability of the account, so it is important to consider any fees associated with the account.

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  • 42. 

    Your goal is to open a regular savings account.  You have done your research and completed the table below.  Which bank would you select if you had a minimum to deposit of $200? FactorsBank ABank BBank CFDIC insuredYesYesYesInterest rate earned1%1.2%0.5%Monthly fees$2$5$0Minimum deposit$50$100$125WebRep currentVote  noRatingnoWeight           

    • A.

      Bank A

    • B.

      Bank B

    • C.

      Bank C

    Correct Answer
    C. Bank C
    Explanation
    Bank C would be the best choice for opening a regular savings account with a minimum deposit of $200. Bank C offers a higher interest rate earned compared to Bank A and Bank B. Additionally, Bank C does not charge any monthly fees, unlike Bank A and Bank B. Although Bank A has a lower minimum deposit requirement, Bank C provides a better overall value with its higher interest rate and no monthly fees.

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  • 43. 

    Your friend tells you that she wants to set up an emergency savings fund so that she has six months of expenses saved.  This will provide her with peace of mind that she can deal with any personal emergencies that life can throw her way.  She tells you she has budgeted expenses of $30,000 per year.  If she earns $50,000 per year and plans to save 10% per year, how long will it take for her to build up that emergency savings fund?  WebRep currentVote  noRatingnoWeight           

    • A.

      1 year

    • B.

      2 years

    • C.

      3 years

    • D.

      4 years

    Correct Answer
    C. 3 years
    Explanation
    Based on the given information, your friend plans to save 10% of her $50,000 annual income. This means she will save $5,000 per year. Since she wants to accumulate $30,000 in her emergency savings fund, it will take her 6 years to reach that goal (30,000 / 5,000 = 6). Therefore, the correct answer is 3 years.

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  • 44. 

    Use this compound interest calculator  to calculate your savings at retirement.  After starting your first job, you remember that summer bridge class and how Bill and Tim encouraged you to start saving for retirement.  You find out that your company has a great 401K matching plan.  You are earning $50,000 per year and decide to put 10% of your earnings into the 401k plan or $5,000 per year.  The company puts in an additional $2,500 into your 401k plan so your annual additions are $7,500.  Your Current Principal is 0 and assume that you continue to put the same amount ($7,500 based on $5,000 from you and $2,500 from the company) for 40 years.  You make good investments in the stock market and earn on average 5% every year over that period.  How much would you have in retirement savings at the end of that 40 year period?WebRep currentVote  noRatingnoWeight           

    • A.

      $7,500

    • B.

      About $300,000

    • C.

      About $600,000

    • D.

      Almost $1,000,000

    Correct Answer
    D. Almost $1,000,000
    Explanation
    By contributing $7,500 per year for 40 years and earning an average of 5% interest annually, the amount of money in the retirement savings will compound over time. Compound interest allows the savings to grow exponentially. At the end of the 40 year period, the savings will have grown to almost $1,000,000.

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  • 45. 

    Read this passage about savings trends in the United States: "If you don't have emergency savings, what do you do when you have an unplanned expense or the money runs out before the bills do?" McBride says. "You're stuck.That means for some people (turning to) high-cost borrowing, check cashing, a payday lender."Another obstacle blocking our road to financial security: Americans' proclivity for buying stuff, McBride says."I've had people stand in front of me with a $5 latte and a $500 iPad and say they couldn't possibly save more than they are now," McBride says.It takes discipline, he says. And some are choosing to live more simply in order to stay ahead. Jeremy Roberts, 30, says he and his wife Charity decided to start living "off much less than we make," as they realized how slowly the economy was recovering.Which of the statements below is the key theme of this passage?  WebRep currentVote  noRatingnoWeight           

    • A.

      People who don't have emergency savings often pay high interest rates to borrow money

    • B.

      It is better to buy things that are considered "wants" rather than save since saving is hard.

    • C.

      Since it is easy to control and predict our spending habits, it is OK not to have emergency savings.

    • D.

      Spending more than you earn is a good strategy to build up savings.

    Correct Answer
    A. People who don't have emergency savings often pay high interest rates to borrow money
    Explanation
    The passage discusses the consequences of not having emergency savings and how it can lead to individuals resorting to high-cost borrowing, such as payday lenders or check cashing services. This implies that people without emergency savings often have to pay high interest rates to borrow money. Therefore, the key theme of the passage is that individuals without emergency savings often face financial difficulties and may have to pay high interest rates when they need to borrow money.

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Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

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  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
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    Quiz Created by
    Tranzetta
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