General Financial Literacy Test Unit 3

1.

1 point

The time value of money can best be explained using which of the following concepts?

The dynamics of compounding

The risk-to-return relationship

The Rule of 72

The "pay yourself first" philosophy

2.

1 point

Investing in real estate is a guaranteed way to earn a lot of money

True

False

3.

2 points

What is an example of an Income Investment

Mutual Funds

Real Estate

Collectibles

Savings Accounts

4.

2 points

A formula used to calculate how long it takes an investor to double his money is known as

5.

1 point

A rise in the cost of goods or services

Capital Loss

Dollar Cost Averaging

Inflation

Capital Gain

6.

2 points

In the compound interest formula A=P(1+i)n, the "n" stands for

the amount in the account

the interest rate

the number of time (years/months) compounded

the principle

7.

1 point

When an investor ends up selling a stock at a lower price than the purchase price, it is known as a

Capital Gain

Rate of Return

Capital Loss

Risk Vs. Reward

8.

1 point

The place where stocks are bought and sold is known as the

9.

1 point

In the future, a dollar will be worth

The same as a dollar today

Less than a dollar today

More than a dollar today

10.

1 point

Which of the following has the lowest investment risk?

U.S. Savings Bonds

Collectibles

Penny stock

Commodities

11.

1 point

The idea of earning interest upon interest is known as simple interest

True

False

12.

2 points

Using the simple interest formula- You put $300 into a savings account that pays 5% annually. How much would you have at the end of 10 years?

13.

1 point

The payment you receive for allowing a financial institution to use (lend) your money is known as

Rate of Return

Dividends

Loan

Earned Interest

14.

2 points

What interest rate would be necessary to double a $100 investment in 11 years?

3.25%

4.75%

6.55%

6%

15.

1 point

What are the top two categories on the Financial Planning Pyramid?

16.

2 points

How many years would it take to double $100 if it earned interest at a rate of 8% per year?

17.

1 point

Oil is a commodity

True

False

18.

1 point

Saving is what people do to meet short term goals

True

False

19.

1 point

The basic rule of a risk-to-return relationship is that the

higher the risk, the higher the return rate

lower the risk, the higher the return rate

all of the above

higher the risk, the lower the return rate

20.

1 point

Commodities are the safest investment because they are backed by the Federal government

True

False

21.

2 points

The equation used for compound interest is-

Principal x Interest Rate x Time

True

False

22.

1 point

A Mutual Fund is an example of a Growth Investment

True

False

23.

2 points

Which statement below is true about mutual funds

All mutual funds buy stocks

You can choose which stock to include in your mutual funds

Mutual funds offer guaranteed returns

Mutual funds are convenient and professionally managed

24.

2 points

Mary invests $100 earning 7% compounded annually. How much will it be worth in 5 years?

25.

2 points

Give two reasons people usually invest money

26.

1 point

Reducing investment risk by putting money in several types of investments is also know as

27.

1 point

Dollar cost averaging is the practice of investing a fixed amount of money into the same investment at regular intervals, regardless of what the market is doing.

True

False

28.

1 point

The share of profits you receive as a stockholder are known as

29.

1 point

Investing is defined as putting money aside that may grow into more money

True

False

30.

2 points

Owning part of a company means that you have ______ in a company