Personal Finance Unit 1

17 November 2022
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question
What is the most important aspect of saving money?
answer
*time*
question
Which of the following conditions will maximize the amount of interest you earn? a. high interest rate and long period of time b. high interest rate and short period of time c. low interest rate and long period of time d. low interest rate and short period of time
answer
a
question
Besides paying interest on you principal, what else does interest compound on?
answer
your interest
question
How often is interest on a simple interest account paid?
answer
annually (once per year)
question
What is compounding frequency?
answer
How often your interest is calculated and added back into your account
question
three steps to use the rule of 72
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1) Find out your interest rate 2) Divide 72 by your interest 3) The answer will tell you how long it will take for your money to double
question
Compound Interest Formula
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A=P(1+r/n)^nt
question
savings vehicle
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an account that is used to hold your savings
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three types of savings vehicles
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savings account, money market account, certificates of deposit
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most basic kind of savings vehicle
answer
savings account
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savings vehicle that is part checking part savings
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money market
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savings vehicle where the money is held for a specific period of time
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certificate of deposit
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plan for your money
answer
budget
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4 good budgeting practices
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1) pay yourself first 2) Don't spend money you don't have 3) Save for a rainy day 4) Save early, save often
question
How many months of salary should you have in savings?
answer
6-12 months
question
what does compounding returns enable you to do?
answer
to earn more money by reinvesting your earnings
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4 types of retirement plans
answer
401k, 403b, traditional IRA, and roth IRA
question
which two retirement plans can you get through your employer
answer
401k 403b
question
what does 'IRA' stand for
answer
Individual Retirement Account
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Roth IRA vs. Traditional IRA
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Traditional IRA: you pay taxes when you retire, tax free now Roth IRA: you pay taxes now, tax free when retire
question
what retirement plans offer tax benefits
answer
all
question
stock
answer
a share of ownership in a company
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bonds
answer
A loan of money to a business or government that is paid back with interest over time
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Treasury Bonds
answer
Bonds issued by the federal government, sometimes referred to as government bonds.
question
Who issues municipal bonds?
answer
state and local governments (city, county)
question
mutual fund
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a way of reducing the risk that any individual bond or stock will lose money (mix of different stocks and bonds chosen by a fund manager)
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inex fund
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a specific type of fund that is made to track the performance of the market or certain investment types
question
when a ____matures, you receive your entire investment back plus any remaining interest
answer
bond
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sometimes a ______ will pay you dividends
answer
stock/mutual fund
question
if you don't want to purchase individual stocks, bonds, or investments, you can get them packaged together in a _______
answer
mutual fund
question
why might a town issue a bond
answer
to raise money for different kinds of projects, traffic systems, or building parks
question
where are stocks at?
answer
stock exchange
question
what is a possible reason a company would sell a stock? a. to hire more people b. to expand its business c. to develop new technology d. b and c e. all of the above
answer
e; all of the above
question
what is the S&P 500
answer
index that measures the performance of the stock market
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What is the Dow Jones Industrial Average?
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an index that represents the performance of the 30 largest companies in the US
question
risk level: savings account
answer
low
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which one has a higher risk? mutual funds or stock
answer
stock
question
as you get older, what should you do to your portfolio's risk level
answer
decrease the risk gradually
question
investors nearing retirement will typically shift their investment portfolios to include ______ risk investments
answer
lower