Pf2017 Quiz 1: Investing, Saving, Budgeting

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 implies that individuals should not make hasty decisions and should take the time to thoroughly understand the terms and conditions before committing to any financial product. This approach ensures that individuals make informed choices and avoid potential financial risks.

The Rule of 72 states that to estimate the number of years it takes to double an investment, you divide 72 by the interest rate. In this case, if your friend can double her money in 24 years, we can estimate that the interest rate on her savings account is 3%.

A Certificate of Deposit (CD) would work best in this scenario because it offers a higher interest rate compared to a regular savings account. With a CD, the money is locked in for a specific period of time, typically ranging from a few months to several years. Since the money is not needed for a number of years, the individual can take advantage of the higher interest rate offered by the CD. This allows for the money to grow at a faster rate compared to a regular savings account.

A regular savings account would be the best choice in this scenario because it allows for easy access to the money and typically has low minimum balance requirements. While it may not offer a high interest rate, the main priority in this situation is having easy access to the funds rather than earning a significant return on investment. A certificate of deposit would lock the money away for a specific period of time, limiting access, and a stock index fund like the S&P500 Fund involves investing in the stock market and carries a higher level of risk.

The rule of 72 is a quick way to estimate how long it takes for an investment to double in value. It is calculated by dividing 72 by the annual interest rate. In this case, since the savings account is earning 6% per year, we divide 72 by 6 to get 12. Therefore, it would take 12 years for the money in the savings account to double.

The percentage return on your investment is +20%. This is calculated by taking the difference between the selling price and the buying price, which is $120 - $100 = $20. Then, dividing this difference by the buying price and multiplying by 100 to get the percentage return: ($20 / $100) * 100 = 20%.

Banks typically quote the interest rates they offer on a per year basis. This means that the interest rate is calculated and paid out annually. This allows customers to easily compare the rates offered by different banks and make informed decisions about where to save their money. Quoting the interest rate on an annual basis also provides a consistent measure for comparing different savings options, regardless of their term or compounding frequency.

Bank B would be the preferred choice because it is in the FDIC program, which means that the deposits are insured up to $250,000 per depositor. This provides a level of protection for the deposited funds in case the bank fails. Bank A, on the other hand, does not offer this insurance. Although Bank A has a higher interest rate, the added security provided by the FDIC program makes Bank B a more reliable option. Additionally, Bank B has competitive fees and a slightly higher minimum deposit requirement, which may not be a significant factor in the decision-making process.

The question asks for the profit or loss on the investment. In this case, the stock was purchased for $100 and sold for $97, resulting in a loss of $3 per share.

If Eastside Savings were to fail, the individual would receive all the money they have deposited at the bank. This is because the FDIC insurance covers accounts up to $250,000, regardless of the amount deposited.

The total value of the stocks that you own can be calculated by multiplying the number of shares you own with the price per share for each stock and then adding them all together. In this case, the calculation would be: (3 shares of Twitter * $15 per share) + (10 shares of Apple * $120 per share) + (20 shares of Nike * $33 per share) = $45 + $1200 + $660 = $1905.

The explanation for the given correct answer is that the statement is stating that 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 2015. This means that the majority of the majors in the top 10 list were STEM majors, indicating that students with technical skills from these majors had higher earning potential compared to other majors.

The answer is correct because it accurately states that as the level of education increases, potential earnings also increase and the risk of being unemployed decreases. This is supported by the information provided in the chart. Additionally, the answer correctly states that individuals with a bachelor's degree earn about $412 more per week than high school graduates when looking at median weekly earnings.

The passage discusses the consequences of not having emergency savings and the options people resort to when faced with unplanned expenses. It mentions that individuals without savings may turn to high-cost borrowing, such as payday lenders, which implies that they often pay high interest rates to borrow money. This statement is supported by the example of people relying on check cashing and payday lenders when they run out of money. Therefore, the key theme of the passage is that people who don't have emergency savings often pay high interest rates to borrow money.

The formula to calculate simple interest is 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 * 1% * 3 = $6. Therefore, you can brag that you will earn $6 in simple interest after three years.

The correct answer states that spending time to comparison shop is a good habit because not all savings accounts have the same interest rates. This suggests that there is variation in interest rates among different savings accounts, implying that some accounts may offer better deals than others. Therefore, taking the time to compare different options can help one find the best deal.

When selecting a savings account, it is important to consider the criteria of FDIC insurance, interest rate earned, minimum deposit, and fees. FDIC insurance ensures that the funds deposited in the account are protected up to a certain amount in case the bank fails. The interest rate earned determines the amount of money that will be earned on the deposited funds over time. The minimum deposit requirement is important to know as it may affect the ability to open the account. Lastly, fees should be considered as they can impact the overall profitability of the savings account.

Saving money in a bank allows you to earn interest. When you deposit money into a savings account, the bank pays you interest on that amount. The interest is a percentage of the money you have saved, and it is typically paid to you on a regular basis, such as monthly or annually. This is a way to earn passive income on your savings, as the interest adds to the total amount of money in your account over time.

On average, individuals with a bachelor's degree earn significantly more over their lifetime compared to those with just a high school degree. The difference in earnings can vary based on factors such as career choice and location, but studies have shown that individuals with a bachelor's degree can earn around a million dollars more over a typical forty-year career compared to those with just a high school degree. This is due to the increased job opportunities and higher earning potential that comes with a college education.

Investing in the S&P500 Index Fund will provide a diversified investment and lower the risk. The S&P500 Index Fund is a type of mutual fund or exchange-traded fund that tracks the performance of the S&P500 index, which includes 500 large companies listed on the US stock exchanges. By investing in this fund, you are essentially investing in a broad range of companies across various sectors, which helps to spread out your investment and reduce the impact of any single company's performance on your overall portfolio. This diversification can help lower the risk compared to investing in individual stocks like Facebook, Google, Nike, or McDonalds.

Based on the given information, the total monthly expenses amount to $2,675 ($800 + $350 + $150 + $50 + $500 + $250 + $100 + $75 + $100 + $300). Since the monthly income is $2,500, which is less than the total expenses, there is a deficit of $175.

The correct answer is to set aside money for savings first, keep your expenses less than your income so that your budget will be in surplus, and be sure to compare your budget plan with your actual spending so that you can determine if you are staying within your budget. By setting aside money for savings first, you prioritize saving and ensure that you are building financial security. Keeping your expenses less than your income helps you avoid debt and allows you to have extra money for savings. Comparing your budget plan with your actual spending helps you track your expenses and make necessary adjustments to stay within your budget.

After three months, the balance of the savings account with an annual interest rate of 6% and a principal of $1,000 would be $1,015. This can be calculated by multiplying the principal by (1 + interest rate/12) raised to the power of the number of months. In this case, (1 + 6%/12)^3 = 1.015, and when multiplied by the principal of $1,000, it gives $1,015. Therefore, the total amount in the account after three months would be $1,015.

The statement is true because while the stock market has generally provided positive long-term returns, there have been periods where investors have experienced losses. This is due to the volatility and unpredictability of the market, which can result in fluctuations in stock prices and potential losses for investors. It is important to consider the potential risks and fluctuations in the market when making investment choices.

If the interest is compounded annually, the balance in the account after 2 years 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 amount (initial deposit), r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years. In this case, P = $500, r = 10% or 0.10, n = 1 (compounded annually), and t = 2. Plugging in these values, the formula becomes A = $500(1 + 0.10/1)^(1*2) = $500(1.10)^2 = $500(1.21) = $605. Therefore, the balance in the account after 2 years would be more than $600.

Based on the information given, your friend plans to save 10% of her earnings every year. Since she earns $50,000 per year, she will be saving $5,000 per year. She wants to save $30,000, which is equal to 6 months of her expenses. Therefore, it will take her $30,000 / $5,000 = 6 years to save up 6 months of expenses. However, the question asks for the time it will take to build up her emergency savings fund, which is defined as 6 months of expenses. Since 6 months is half of a year, it will take her half of the time, which is 6 years / 2 = 3 years.

The correct answer is Apple, Google, McDonalds. This is determined by calculating the percentage return for each stock. Apple has a return of (100-94)/94 = 6.38%. Google has a return of (515-500)/500 = 3%. McDonalds has a return of (65-73)/73 = -10.96%. Therefore, Apple has the highest return, followed by Google, and then McDonalds.

Owning a share in the S&P500 Fund would be expected to earn the highest return compared to the other investment options listed. The S&P500 Fund is a diversified index fund that tracks the performance of the 500 largest publicly traded companies in the United States. This means that by owning a share in the S&P500 Fund, an individual would be investing in a wide range of companies across various sectors, potentially leading to higher returns. On the other hand, a regular savings account, a bond for a utility company, and a certificate of deposit are generally considered to have lower returns and are considered safer investments.