Irene invested $27,000 in a twelve-year CD bearing 8.0% interest, but needed to withdraw $6,000 after three years. If the CD's penalty for early withdrawal was eighteen months' worth of interest on the amount withdrawn, when the CD reached maturity, how much less money did Irene earn total than if she had not made her early withdrawal?
a.
$3,600
b.
$4,320
c.
$720
d.
$5,040
answer
D Explanation: If the CD's penalty for early withdrawal was eighteen months' worth of interest on the amount withdrawn, when the CD reached maturity, Irene would earn a total of $5,040 less than if she had not made her early withdrawal.
question
Adam invested $12,000 in a six-year CD that paid 7.1% interest, but later needed to withdraw $2,500 early. If the CD's penalty for early withdrawal was eighteen months' worth of interest on the amount withdrawn, how much of a penalty did Adam pay?
a.
$138.89
b.
$177.50
c.
$266.25
d.
$319.50
answer
C Explanation: Adam paid a penalty of $266.25 for withdrawing $2,500 early from his six-year CD that paid 7.1% interest. The penalty was eighteen months' worth of interest on the amount withdrawn, which was calculated by multiplying the interest rate (0.071) by the amount withdrawn ($2,500) by eighteen (18).
question
Larissa invested $19,000 in an eleven-year CD giving 7.5% interest, but needed to withdraw $2,500 after four years. If the CD's penalty for early withdrawal was one year's worth of interest on the amount withdrawn, how much money did Larissa have when the CD reached maturity, not including the amount she withdrew?
a.
$13,612.50
b.
$30,675.00
c.
$30,112.50
d.
$14,175.00
answer
B Explanation: When Larissa invested $19,000 in the CD, she agreed to leave the money in the account for 11 years. If she withdrew money from the account before 11 years, she would incur a penalty. In this case, the penalty would be one year's worth of interest on the amount withdrawn. Larissa withdrew $2,500 after four years, so she would have to pay a penalty of $2,500 * 7.5% = $187.50. This would leave her with $2,500 - $187.50 = $2,312.50. The CD would continue to earn interest for the remaining seven years, so at the end of the 11 years, Larissa would have $2,312.50 + $19,000 * 7.5% = $30,675.
question
You have $5,400 to deposit. If you deposit the money in a savings account at your local bank, you will earn 1.49% annual interest and will be able to make ATM withdrawals at your bank's ATMs. If you deposit the money in an online savings account, you will earn 4.44% annual interest, but you will be charged $5 every time you make an ATM withdrawal. Assuming that your ATM withdrawals do not reduce the amount of interest you earn, roughly how many times a year can you make an ATM withdrawal in order for the local savings account to be a better deal than the online savings account?
a.
32
b.
27
c.
22
d.
15
answer
A
question
Livvi invests $19,430 in a savings account at her local bank which pays 1.8% simple annual interest. She also deposits $16,470 in an online savings account which pays 2.7% simple annual interest. After six years, which account will yield more interest, and approximately how much more interest will it yield?
a.
The online account will give $2,668 more interest.
b.
The online account will give $570 more interest.
c.
The local account will give $2,960 more interest.
d.
The local account will give $2,390 more interest.
answer
B Explanation: The online account will give $2,668 more interest.
question
Haley invests $16,820 in a nine-year CD bearing 5.8% interest, and $21,950 in an online savings account giving 3.0% interest. When the CD reaches maturity, how much more interest will it have generated than the savings account?
a.
$5,129.72
b.
$3,650.32
c.
$2,853.54
d.
$2,276.46
answer
C Explanation: The CD will have generated $5,129.72 more in interest than the savings account.
question
Lloyd has $20,000 to deposit. His wife's illness leads to medical expenses beyond what their insurance will cover, so Lloyd must often quickly access his savings. Recommend a good way for Lloyd to store his money.
a.
A two-year CD giving 9.1% interest annually
b.
An online savings account giving 3.6% interest
c.
A series of six-month money market accounts paying 4.6% interest
d.
A checking account with free checks
answer
B Explanation: and a debit cardIf Lloyd needs quick access to his savings, a checking account with free checks and a debit card would be the best option. This account would allow him to easily withdraw money when needed and would not charge him any fees for doing so.
question
True or False: A traditional, physical bank with online options is a type of online bank.
answer
T(?) Explanation: A traditional, physical bank with online options is not a type of online bank. A traditional, physical bank is a bank that has a physical location where customers can conduct transactions. An online bank is a bank that is solely operated online and does not have a physical location.
question
You have $6,500 to deposit. If you deposit the money in a savings account at your local bank, you will earn 1.45% annual interest and will be able to make ATM withdrawals at your bank's ATMs. If you deposit the money in an online savings account, you will earn 2.25% interest, but you will be charged $4 every time you make an ATM withdrawal. Assuming that your ATM withdrawals do not reduce the amount of interest you earn, how many ATM withdrawals must you make in a year for the local savings account to be a better deal than the online savings account?
a.
5
b.
12
c.
14
d.
10
answer
C
question
Ashley invests $9,720 in a one-month money market account paying 3.16% simple annual interest and $8,140 in a two-year CD yielding 3.23% simple annual interest. Assuming Ashley does not reinvest or renew these investments, how much money will she have when both investments reach maturity, to the nearest dollar?
a.
$550
b.
$1,080
c.
$17,310
d.
$18,411
answer
D Explanation: Assuming Ashley does not reinvest or renew these investments, she will have $17,310 when both investments reach maturity.
question
Why do certificates of deposit tend to offer better interest rates than money market accounts?
a.
Certificates of deposit involve a longer time commitment than money market accounts, so they carry a greater return.
b.
Certificates of deposit are only available to the bank's most proven and valuable customers, so the bank can afford to give a greater interest rate on them.
c.
They do not offer a better interest rate. Money market accounts tend to have the best interest rates of any bank deposit.
d.
Money market accounts invest your money but sometimes lose some of it, so the lower interest rate pays for the difference.
answer
B Explanation:Assuming Ashley does not reinvest or renew these investments, she will have $17,310 when both investments reach maturity.
question
Greg invests $2,680 in a CD paying 7.0% interest, and $3,060 in an online savings account paying 4.5% interest. How much more interest will the CD have earned than the savings account after 1 year?
a.
$25.90
b.
$49.90
c.
$380.00
d.
$499.00
answer
B Explanation: The CD will have earned $25.90 more than the savings account after 1 year.
question
Some online banks offer "online bill pay." What does this mean?
a.
There is a fee associated with online banking, but the bank will waive that fee as an incentive.
b.
You can visit your bank account online and electronically transfer funds to pay your bills.
c.
The bank will automatically pay your internet bill as a reward for banking with them.
d.
You can use that bank account, and only that bank account, to pay for purchases you make online.
answer
B
question
Rate the following bank accounts from most to least liquid: CD, savings account, checking account, money market account.
a.
CD, savings account, checking account, money market account
b.
Savings account, checking account, CD, money market account
c.
CD, money market account, savings account, checking account
d.
Checking account, savings account, money market account, CD
answer
D Explanation: The most liquid account would be the checking account because funds can be accessed immediately. The savings account would be the next most liquid because it typically takes one to two days for funds to be available. The least liquid account would be the CD because it typically has a set term with limited access to funds.
question
Rachel invested $15,000 in a nine-year CD giving 8.5% interest, but needed to withdraw $4,000 after two years. If the CD's penalty for withdrawal was six months' worth of interest on the amount withdrawn, how much money did Rachel have when the CD reached maturity, not including the amount she withdrew? Round answer to the nearest whole dollar.
a.
$19,925
b.
$8,795
c.
$19,795
d.
$12,965
answer
A(?) Explanation: Rachel would have $19,925 when the CD reached maturity, not including the amount she withdrew. The reason for this is that the CD's penalty for withdrawal is six months' worth of interest on the amount withdrawn, which in this case would be $4,000.
question
Ian invests $13,670 in a savings account at his local bank which gives 1.9% simple annual interest. He also invests $6,040 in an online savings account which gives 4.5% simple annual interest. After nine years, which one will have earned more interest, and how much more interest will it have earned, to the nearest dollar?
a.
The local account will have earned $7,521 more interest.
b.
The local account will have earned $3,199 more interest.
c.
The online account will have earned $3,090 more interest.
d.
The online account will have earned $109 more interest.
answer
D Explanation: The online account will have earned more interest because it has a higher interest rate. The online account will have earned $3,090 more interest than the local account.
question
Which of these can be considered "online banking?"
I. A brick-and-mortar bank that allows its customers to transfer money online.
II. A bank that has only a few branches but has customers depositing money online.
III. A bank that does not exist as a real building, but only has an internet presence.
a.
I and II
b.
II and III
c.
III only
d.
I, II, and III
answer
D
question
Norm has $15,000 to deposit. His daughter is a junior in high school and plans to go to college. Recommend the best way for Norm to store his money. Note that the interest rates are expressed on an annual basis.
a.
A four-year CD paying 4.8% interest, with a substantial penalty for early withdrawal
b.
An online savings account offering 2.3% interest
c.
A money market account paying 3.5% interest, renewable for three-month commitments
d.
A checking account with no monthly fees
answer
C Explanation: and 0.1% interest on the account balanceThe best way for Norm to store his money would be in a four-year CD paying 4.8% interest, with a substantial penalty for early withdrawal. This will allow him to earn a higher interest rate on his money, and he will not be able to access the funds until his daughter is ready to go to college.
question
Orlando invested $16,000 in an eight-year CD bearing 6.5% simple annual interest, but needed to withdraw $3,500 after five years. If the CD's penalty for early withdrawal was one year's worth of interest on the amount withdrawn, when the CD reached maturity, how much less money did Orlando earn total than if he had not made his early withdrawal?
a.
$227.50
b.
$682.50
c.
$910.00
d.
$455.00
answer
D Explanation: If Orlando had not made an early withdrawal, he would have earned $16,000 * 6.5% * 8 = $1040 in interest. However, because he made an early withdrawal, he was charged a penalty of one year's worth of interest on the amount withdrawn. This penalty was $3,500 * 6.5% = $227.50. As a result, Orlando earned a total of $1040 - $227.50 = $812.50 in interest.
question
Which of the following are advantages of certificates of deposit (CDs) over savings accounts?
I. CDs are more readily accessible than savings accounts.
II. CDs offer greater interest rates than savings accounts.
III. CDs have greater FDIC backing than savings accounts.
a.
I and II
b.
II only
c.
I and III
d.
none of these
answer
B(?) Explanation: II. CDs offer greater interest rates than savings accounts.III. CDs have greater FDIC backing than savings accounts.
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