Saving and Investing Standard 5 Assessment

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1 1 Name: Class Period: Saving and Investing Directions: Circle the letter of the choice that BEST completes each statement. 1. Which of the following statement is TRUE? a. Savings and investing is only for wealthy people. b. Savings and investing is important for people of all income levels. c. Savings is only for people with limited income and investing is for people with high levels of income. d. Savings is only for people with high levels of income and investing is for people with limited income. 2. Inflation refers to a. an overall increase in prices. b. the amount of money earned by investing. c. how quickly your money can double. d. the level of risk associated with equity investing. 3. If you are planning to put aside money for long-term goals, your BEST option is probably a. keeping your money in a jar by the bed because banks are not safe. b. putting your money in a savings account because it is insured. c. putting your money into a mutual fund because it is diversified. d. buying stock only in the company where you work. 4. Default risk is a. the potential that you will not get your money back once it is invested. b. fear that inflation will grow faster than the interest you earn. c. fear that you cannot earn enough money to meet your goals. d. the potential that you will quit saving. 5. Stocks and bonds are similar in that both a. have a guaranteed rate of return. b. provide ownership in a business. c. have relatively high levels of risk.

2 2 d. are tied to the rate of inflation. 6. Compound interest is calculated as a. principal plus any interest they have already paid you. b. principal minus the amount you are paid annually. c. principal but not on the interest earned. d. prorated interest over the life of an investment. 7. Low interest rates a. are paid on high risk investments. b. are paid on small investments. c. increase the amount of time needed to double your money. d. decrease the amount of time needed to double your money. 8. Which of the following statements is FALSE? a. Low interest rates decrease the incentive to save. b. A savings account is best for meeting short-term goals. c. It is better to wait until interest rates are high to start saving. d. Investing tends to have a higher risk than savings, resulting in potentially higher rates of return. 9. When saving or investing, the principal is the a. owner of the account. b. primary investor in the account. c. original amount of money deposited for investing. d. amount of money paid out of the earnings. 10. Liquidity is defined as a. how easy it is to turn an item into cash without losing any money. b. how easy it is to lose money when you invest in a risky business. c. the ability of savings to earn interest. d. the potential loss from rising prices. 11. Deciding whether to save $25 dollars or buy a pair of shoes illustrates a. risk. b. budgeting. c. opportunity cost. d. denial of benefits.

3 3 12. Money market mutual funds a. are always federally insured from FDIC. b. are only available from banks or stock brokers and are primarily designed for high risk investors. c. by design provide lower rates of return than savings accounts because the money is invested in very short-term investments with a low risk. d. are designed to provide higher rates of return than savings accounts as the money is invested in very short-term investments with a low risk. 13. Which of the following BEST describes diversifying a portfolio? a. Buying stocks every year in the same company b. Buying corporate bonds and stocks in the same company c. Buying stocks in several different companies d. Putting all of your money in a safe investment 14. If you have a low risk tolerance, you should a. put all of your money in an insured savings account. b. avoid stocks because they are too risky. c. avoid buying bonds unless you work for the company. d. invest in a mutual fund to spread your risk. 15. Even though stock purchases have high risk, a. they are still a good investment to reach long-term goals. b. they are still a good investment to reach short-term goals. c. they should be avoided unless you get a guaranteed rate of return. d. you can still make money if you buy enough of them. 16. Taking the time to review your investments and make adjustments in your portfolio a. can be an expensive and time consuming process. b. is just as important as reviewing your personal and financial goals. c. should be avoided because it gives you too many opportunities to change your mind. d. is generally a waste of time because few people change their minds about what they want to do.

4 4 17. The Rule of 72 is an easy way to determine a. how long it will take your money to double using compound interest. b. the annual rate of return on your investment. c. how long it will take to get out of debt. d. the annual percentage rate on your savings. 18. Which form of interest provides the GREATEST return? a. Simple b. Compound c. Complex d. Fixed 19. An average rate of return on an investment a. guarantees how much you will earn on the money you invested. b. is an estimate of how much you will earn on the money you invested. c. shows past performance and how it might do in the future. d. is a measure of the risk associated with your investment portfolio. 20. Government savings bonds a. generally are a poor investment option due to high levels of government debt. b. tend to have a higher rate of return because the government needs the money. c. are backed by the U.S. government, so there is little or no default risk. d. are backed by the U.S. government, so they have a high default risk. 21. If your account is earning 6% interest, it will take years for your money to double. a. 22 b. 10 c. 12 d Which of the following items is liquid? a. Money is a savings account b. Money invested in real estate c. Money invested in a CD d. A new car

5 5 23. How much money will you have at the end of three years if your principal is $100 and your interest rate is 5% (simple interest)? a. $15 b. $85 c. $105 d. $ If you plan to go skiing next winter, your BEST choice for saving money is a. buying stocks. b. putting money in a savings account. c. investing in Savings Bonds. d. putting your money in a five year CD.

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