Preparing to Invest Quizzes Answer Key (* denotes correct answer) Quiz 1: Saving and Investing Basics, part 1 Select the best answer for each exercise below. 1. Saving and investing are two terms for the same concept a. True b. False* 2. Saving is the act of a. setting aside money that one earns or receives as a gift often in a bank account. b. preserving assets that one has accumulated c. making money grow d. a and b* 3. Investing is the act of a. putting money in a bank account b. selecting products and strategies to increase the money one has earned or received c. preserving assets that one has accumulated d. b and c* 4. If you have financial goals that require more money than you earn such as buying a house, key ways to achieve these goals include: a. saving money b. getting a credit card c. investing assets d. a and c* 5. These are ways you can save money: a. put money that you earn in a deposit account b. buy U.S. savings bonds c. both a and b* d. none of the above 6. A checking account is a type of deposit account. a. True* b. False Prepared by Santa Clara County Library for the FINRA Investor Education Modules: Module 1, Quiz 4 v. 011012 ‐ Page 1
7. You can open one or more deposit accounts in a a. bank b. credit union c. post office d. both a and b* 8. Account balances are usually insured by the federal government. a. True* b. False Quiz 2: Saving and Investing Basics, part 2 1. The insurance currently protects individual, joint, business and trust accounts up to what amount for each depositor in a participating bank or credit union? a. $100,000 b. $350,000 c. $250,000* d. $50,000 2. You can buy U.S. savings bonds online at a. Treasury Direct (www.treasurydirect.gov)* b. all work places c. all banks and credit unions d. any bank 3. Series EE savings bonds pay : a. no interest b. fixed rate of interest * c. interest linked to the prime rate d. prime rate 4. You can cash a savings bond within a year after you purchase it a. True b. False* 5. Savings institutions pay interest on the money you deposit with them. The interest rate is expressed using two concepts. They are: a. nominal rate and assigned proportion year (APY) b. normal rate and actual percentage yield (APY) c. nominal rate and annual percentage yield (APY)* d. median rate and annual proportion yield (APY) 6. If the APY is larger than the nominal rate, this indicates that the interest is paid more frequently than once a year. a. True* b. False Prepared by Santa Clara County Library for the FINRA Investor Education Modules: Module 1, Quiz 4 v. 011012 ‐ Page 2
7. When interest is paid more often than once a year and interest earnings are added to the original sum deposited each time they are paid, this is called: a. competing b. composting c. compounding* d. none of the above 8. The Rule of 72 is: a. a quick way to forecast how long it will take to double a deposit when compounding is at work.* b. a quick way to figure out how much money you should save for retirement. c. a shorthand way to estimate how much Social Security funds you will get if you retire at 72. d. none of the above 9. You have deposited $10,000 in a bank. The bank pays 4% interest each year on the deposit. How long will it take for your deposit to grow to $20,000? (Hint: Apply the Rule of 72.) e. 12 years f. 18 years* g. 10 years h. 16 years Prepared by Santa Clara County Library for the FINRA Investor Education Modules: Module 1, Quiz 4 v. 011012 ‐ Page 3
Quiz 3: Bank Products Knowledge Select the best answer for each exercise below. 1. Banks offer different kinds of accounts that pay the same interest rate: a. True* b. False 2. The most common types of savings bank products include: a. basic savings accounts b. money markets accounts c. certificates of deposit d. all of the above* 3. In general, the higher the interest rate paid on an account: a. the more limitations there are on access to your money.* b. the more fees you have to pay. c. the quicker you must withdraw your deposit. d. the more you have to deposit every month. 4. Which bank product generally pays the highest rate of interest: a. money market accounts b. certificates of deposit* c. checking accounts d. basic savings accounts 5. What might happen if you take your money out of a CD before it reaches full term? a. Nothing b. You will be paid a lower interest rate than you expected. c. You might have to give up all of the interest you expected to earn.* d. You will lose your principal and the interest you expect to earn. Quiz 4: Growth through Investing Select the best answer for each exercise below. 1. What is one way investments differ from savings accounts? a. Investment earnings are not guaranteed* b. All investment earnings are based on a nominal rate of interest c. Investments don’t lose value d. none of the above 2. Investments are not insured by the federal government and can lose value. a. True* b. False 3. Higher expected returns are accompanied by : Prepared by Santa Clara County Library for the FINRA Investor Education Modules: Module 1, Quiz 4 v. 011012 ‐ Page 4
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fees. penalties. risk.* all of the above. 4. You can limit the risk in your investments by: a. putting all your eggs in one basket. b. choosing a well‐diversified mix of investments.* c. choosing one or two investments only. d. none of the above. 5. You can invest in many things that you expect to earn a profit. Some of the most commonly known investments include: a. stocks. b. bonds. c. mutual funds and cash equivalents d. all of the above.* 6. REIT stands for: a. real estate investment trust.* b. risky enterprise interest trust. c. revenue enterprise investment trust d. real estate interest trust. Prepared by Santa Clara County Library for the FINRA Investor Education Modules: Module 1, Quiz 4 v. 011012 ‐ Page 5