Savings, Budgeting And The Value Of College
A review of savings and budgeting concepts for Eastside Prep Personal Finance course. Good luck!
Questions and Answers
- 1.
What is the correct order of the steps needed to make good financial decisions?
- A.
Set Goal, Collect Info., Compare alternatives, Determine criteria, Decide
- B.
Decide, Determine criteria, Collect Info., Compare alternatives, Set Goal
- C.
Set Goal, Compare alternatives, Determine criteria, Collect info., Decide
- D.
Set Goal, Collect Info., Determine criteria, Compare alternatives, Decide
- E.
None of the above
Correct Answer
D. Set Goal, Collect Info., Determine criteria, Compare alternatives, DecideExplanation
The correct order of the steps needed to make good financial decisions is to first set a goal, then collect information, determine criteria, compare alternatives, and finally make a decision. This order ensures that one has a clear objective, gathers relevant information, establishes criteria for evaluating options, compares different alternatives, and ultimately makes a well-informed decision based on the set goal and criteria.Rate this question:
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- 2.
A budget surplus occurs when income is greater than expenses.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
A budget surplus refers to a situation where the income or revenue generated exceeds the expenses or spending. In other words, there is more money coming in than going out. This can be seen as a positive outcome as it indicates financial stability and the ability to save or invest the excess funds. Therefore, the statement that a budget surplus occurs when income is greater than expenses is correct.Rate this question:
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- 3.
Based on your reading of the Wall Street Journal, which of the fees listed below IS NOT charged by banks?
- A.
Lost debit card fee
- B.
Monthly service fee
- C.
Direct deposit fee
- D.
Out of network ATM fees
- E.
Fee if customer wants a paper statement
Correct Answer
C. Direct deposit feeExplanation
The correct answer is "Direct deposit fee" because banks do not typically charge a fee for direct deposits. Direct deposits are a convenient and cost-effective way for banks to receive funds from employers or government agencies, so they do not usually impose a fee for this service.Rate this question:
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- 4.
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
If you deposit $200 into a savings account with an interest rate of 1% for 3 years, the simple interest can be calculated by multiplying the principal amount ($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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- 5.
A student completing their college education at a four-year college rather than dropping out of high school can expect to earn how much more over their working lifetime?
- A.
$200,000
- B.
$500,000
- C.
$750,000
- D.
$1,200,000
Correct Answer
D. $1,200,000Explanation
Completing college education at a four-year college instead of dropping out of high school can result in earning $1,200,000 more over their working lifetime.Rate this question:
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- 6.
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 refers to 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 to others and earn profit. In return for allowing the bank to use your money, they pay you interest as a form of compensation. This interest is usually a percentage of the amount you have deposited and is paid to you regularly over a certain period of time. It is a way for banks to incentivize people to save their money and also a way for individuals to earn additional income on their savings.Rate this question:
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- 7.
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 situation because it offers a higher interest rate compared to a regular savings account or money market savings account. Additionally, since the money is locked in for a specific period of time, it is not easily accessible, making it suitable for someone who does not need to access the money for a number of years. Finally, if interest rates are expected to fall in the future, locking in a higher interest rate with a CD would be beneficial.Rate this question:
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- 8.
Which combination of interest rates and fees are the better deal assuming you open a $500 savings account?
- 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 account with a 2% annual interest rate and no fees is the better deal. With a $500 savings account, the 10% annual interest rate on the first account would only earn $50 in interest per year. However, the $5 monthly fees would amount to $60 in fees per year, resulting in a net loss of $10. On the other hand, the account with a 2% annual interest rate and no fees would earn $10 in interest per year, resulting in a net gain of $10. Therefore, the second account is the better deal.Rate this question:
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- 9.
The FDIC (Federal Depository Insurance Corporation) protects bank accounts up to what amount?
- A.
$100,000
- B.
$250,000
- C.
$1,000,000
- D.
$5,000,0000
Correct Answer
B. $250,000Explanation
The FDIC (Federal Deposit Insurance Corporation) protects bank accounts up to $250,000. This means that if a bank fails, the FDIC will reimburse depositors up to $250,000 per account. This insurance coverage helps to ensure the stability and security of the banking system, providing peace of mind to depositors.Rate this question:
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- 10.
The principal reason that Federal Reserve Chairman Ben Bernanke has seen his popularity decline since 2009:
- A.
Interest rates on savings accounts are too high
- B.
Unemployment remains stubbornly high at close to 9%
- C.
The cost to borrow money is too high
- D.
Inability to end the NFL strike
Correct Answer
B. Unemployment remains stubbornly high at close to 9%Explanation
The correct answer is "Unemployment remains stubbornly high at close to 9%". This is likely the principal reason for the decline in Ben Bernanke's popularity since 2009 because high unemployment rates indicate a struggling economy and people tend to hold the Federal Reserve Chairman responsible for economic conditions. When unemployment is high, it suggests that people are struggling to find jobs and this can lead to dissatisfaction with the current economic policies and the person in charge of them.Rate this question:
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- 11.
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 in a year. Since he gets paid $8 per hour, his total earnings for the year would be 500 * 8 = $4,000. This is his gross pay before any deductions like taxes or the value of the smoothies.Rate this question:
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- 12.
Indicate which of the following costs are considered fixed expenses (may be more than one answer):
- A.
Monthly rent
- B.
Food
- C.
Electricity
- D.
Car payment
- E.
Auto insurance
Correct Answer(s)
A. Monthly rent
D. Car payment
E. Auto insuranceExplanation
Fixed expenses are costs that remain the same regardless of the level of production or sales. Monthly rent, car payment, and auto insurance are considered fixed expenses because they are recurring payments that do not change in amount regardless of how much food or electricity is consumed. Food and electricity, on the other hand, are considered variable expenses because they can fluctuate depending on consumption.Rate this question:
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- 13.
True or False. It always makes sense to select the savings account with the highest interest rate.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
While it may seem logical to always choose the savings account with the highest interest rate, it does not always make sense. Other factors such as fees, minimum balance requirements, and accessibility should also be considered. A savings account with a higher interest rate may have higher fees or require a higher minimum balance, making it less beneficial overall. It is important to consider all factors and choose the savings account that best fits your individual financial needs and goals.Rate this question:
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- 14.
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
The term refers to the length of time for which the funds will be deposited in the savings account. This factor would not be considered in selecting a simple savings account because a simple savings account does not have a specific term or maturity date. It is a basic account where funds can be deposited and withdrawn at any time without any restrictions on the length of time the funds will be kept in the account.Rate this question:
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- 15.
When interest rates are as low as they are now (recall that Bank of America is offering a 0.05% 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 will have to pay less in interest on their loans. On the other hand, it is bad for savers because they will earn less interest on their savings. With low interest rates, the returns on savings accounts and other investments are minimal, which can be disadvantageous for savers who rely on the interest income to grow their savings.Rate this question:
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- 16.
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, 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, a savings account earning 6% per year would double after 12 years.Rate this question:
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- 17.
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 statement suggests that watching commercials and listening to friends' recommendations are sufficient for making a decision about a specific financial product. However, this is not true as financial decisions require careful research, analysis, and consideration of various factors such as interest rates, terms and conditions, fees, and suitability to individual needs. Relying solely on commercials and friends' recommendations may lead to uninformed decisions and potential financial risks.Rate this question:
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- 18.
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
After three months, the balance of the savings account can be calculated using the formula for compound interest:
Balance = Principal * (1 + (interest rate/number of compounding periods))^(number of compounding periods * time)
In this case, the principal is $500, the interest rate is 6% (0.06), the number of compounding periods is 12 (since it is compounded monthly), and the time is 3 months.
Plugging in these values into the formula, we get:
Balance = $500 * (1 + (0.06/12))^(12 * 3)
Simplifying the equation, we get:
Balance = $500 * (1 + 0.005)^36
Calculating the value inside the parentheses, we get:
Balance = $500 * (1.005)^36
Evaluating this expression, we get:
Balance ≈ $507.50
Therefore, the correct answer is $507.50.Rate this question:
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- 19.
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 can all be considered as income. These are all sources of money that an individual receives, whether it is through gifts, work, or regular payments. Money spent on school supplies and money spent to go to the movies are expenses, not income.Rate this question:
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- 20.
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" rather than a "need" because it is not essential for survival or basic human functioning. While it may provide convenience and transportation, it is not necessary for meeting basic needs such as food, shelter, or healthcare.Rate this question:
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- 21.
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. This means that you do not need to provide any documentation or proof of employment to open a savings account. The other items listed, such as a state issued ID, social security number, guardian's signature (if under 18), and a deposit to open the account, are all necessary requirements to open a savings account.Rate this question:
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- 22.
In the video that we watched where Ben Bernanke answers a question about financial literacy, who does he say is responsible for a consumer's financial security?
- A.
The Government
- B.
Banks or other financial service providers
- C.
Regulators (the people who make the rules that banks must follow)
- D.
The Consumer (You)
Correct Answer
D. The Consumer (You)Explanation
In the video, Ben Bernanke states that the responsibility for a consumer's financial security lies with the consumer themselves. This means that individuals are responsible for making informed decisions, managing their finances, and taking steps to protect their financial well-being. While the government, banks, and regulators play important roles in creating a conducive financial environment and providing necessary regulations, ultimately, it is up to the consumer to take control of their financial security.Rate this question:
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- 23.
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, 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, freelancing, or asking for a raise. By increasing your income by a larger amount than your deficit, you will have enough funds to cover your expenses and eliminate the deficit.Rate this question:
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- 24.
A(n) ___________________ expense does not change on a month-to-month basis while a(n) _____________________ expense will change from month to month. A(n) ____________________ expense is one that is unanticipated and will occur generally without warning
- A.
Fixed, variable, emergency
- B.
Variable, fixed, emergency
- C.
Emergency, fixed, variable
- D.
Variable, emergency, fixed
Correct Answer
A. Fixed, variable, emergencyExplanation
A fixed expense is an expense that remains constant and does not change on a month-to-month basis. On the other hand, a variable expense is one that can fluctuate and change from month to month. An emergency expense refers to an unforeseen and unexpected expense that can occur without warning.Rate this question:
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- 25.
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 given statement is true because the Ally Bank Pony commercial highlights the importance of asking questions when making a decision about a bank's products. This suggests that the commercial provides examples or reasons that support the idea of asking questions before making a decision about a bank's products.Rate this question:
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Mar 21, 2023Quiz Edited by
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