Question 1

Another name for a regular savings account is a

Accepted Answer

A regular savings account is often referred to as a passbook or statement account. Certificate of deposit, checking accounts, money market accounts, and money market funds are different types of accounts with specific features and requirements.

Question 2

The text discusses several types of bonds. Which bond, which is no longer sold, electronically deposits interest into your bank account every six months?

Accepted Answer

Series HH bonds were unique in that they electronically deposited interest into the owner's bank account every six months. They are no longer sold, distinguishing them from other types of bonds mentioned.

Question 3

The text discusses several types of bonds. Which bond pays interest for 30 years that is exempt from state and local taxes?

Accepted Answer

Series EE bonds pay interest for up to 30 years and the interest is exempt from state and local taxes.

Question 4

Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open?

Accepted Answer

A money market account would be the best choice for Zach as it offers a higher interest rate than a regular savings account and typically requires a higher minimum balance to avoid fees. It also provides federal deposit insurance. While a certificate of deposit also offers higher interest rates, it typically requires a longer commitment of time and limited access to funds. An interest-earning checking account may require a certain number of transactions to qualify for the higher interest rate and may have lower rates than a money market account. A money market fund is an investment option, not a bank account.

Question 5

Karen wanted a certificate of deposit that would definitely be available the entire length of time until maturity. She would NOT want to consider a

Accepted Answer

A callable CD gives the issuer the option to redeem the CD before its maturity, which means that it may not be available for the entire length of time until maturity. For Karen's needs, it is best to choose a CD without a callable option.

Question 6

Earnings on savings can be measured by the

Accepted Answer

The earnings on savings are measured by the rate of return, which represents the percentage of interest earned on the account balance. Compounding refers to the frequency at which the interest is added to the account balance, liquidity refers to the accessibility of the funds, minimum deposit refers to the initial amount required to open the account, and safety refers to the level of risk associated with the investment. While these factors also impact the earnings on savings, the rate of return is the most important measurement of earnings.

Question 7

Earning interest on previously earned interest is called

Accepted Answer

Compounding is the process of earning interest on both the initial principal and the accrued interest. This results in exponential growth of the investment over time, making it a lucrative option for those looking to maximize their returns. Liquidity refers to the ease with which an asset can be converted into cash, minimum deposit is the minimum amount required to open an account, rate of return is the amount earned on an investment over a certain period of time, and safety refers to the level of risk associated with the investment. While these factors are also important to consider, compounding is a key factor in the growth of an investment.

Question 8

Marcus bought a certificate of deposit whose interest rate is based on the stock market. Sometimes, his earnings are higher than other similar cds, and at other times, his earnings are lower. He purchased a

Accepted Answer

Marcus bought an Indexed CD because its interest rate is based on the stock market and can fluctuate, resulting in higher or lower earnings.

Question 9

If you want to buy U.S. savings bonds, you may purchase them through

Accepted Answer

The best choice is to purchase U.S. savings bonds through a TreasuryDirect account, as it is a secure and convenient way to buy, manage, and redeem electronic savings bonds directly from the US Department of the Treasury. It eliminates the need for paper bonds and allows for easy online management of your investments. Other options listed are not directly related to purchasing savings bonds.

Question 10

The text discusses several types of bonds. Which bond is purchased at face value and has two components to the rate of interest earned-a fixed rate and an inflation rate that changes twice a year?

Accepted Answer

Series I bonds have a fixed rate of interest that is determined at the time of purchase, but also have an inflation component that is adjusted twice a year based on the Consumer Price Index (CPI). These bonds are purchased at face value and are considered low-risk investments. Series E and Series EE are no longer issued and have been replaced by Series I and Series EE bonds. Series HH and Series Q are not types of bonds.

Question 11

A drawback of a regular savings account is

Accepted Answer

Regular savings accounts typically offer lower interest rates compared to other investment options, which is considered a drawback. Savings accounts are usually insured (e.g., by the FDIC in the United States), do not generally require a minimum deposit (or if they do, it's relatively low), and do not penalize for early withdrawal, distinguishing them from CDs and other investment vehicles.

Question 12

Wanda bought a certificate of deposit and automatically received a free bike. She purchased a

Accepted Answer

Wanda received a free bike along with her CD purchase, which indicates that she purchased a Promotional CD, which typically offers some kind of incentive or promotion to attract customers.

Question 13

Why are some financial service operations referred to as financial supermarkets?

Accepted Answer

Financial supermarkets refer to operations or institutions that offer a combination of financial services from one source, just as a supermarket offers a variety of products in one place.

Question 14

When Jack picked up a personal computer from the _____, he was really leasing it.

Accepted Answer

Rent-to-own centers allow customers to take home an item and make regular payments towards ownership, but they do not officially own the item until all payments are made. This is similar to leasing.

Question 15

Amber wants to open an account, but she doesn't know which kind is appropriate. She is interested in earning a higher interest rate and plans to keep at least $1,000 in her account so she can avoid paying a fee. Amber wants to open her account at an investment company and understands that her account will not be covered by federal deposit insurance. What kind of account should she open?

Accepted Answer

A money market fund is the correct choice for Amber because it is typically offered by investment companies and can offer higher interest rates compared to traditional savings accounts. Unlike the other options listed, money market funds are not covered by federal deposit insurance, aligning with Amber's understanding and requirements.

Question 16

A certificate of deposit that has earnings based on the stock market is called a (n)

Accepted Answer

An Indexed CD, also known as an Equity-Indexed CD or Market-Linked CD, is a type of certificate of deposit that has returns linked to the performance of a specific stock market index, such as the S&P 500. The interest rate earned on the CD is based on the performance of the index and may be higher than traditional CDs. However, there is usually a cap on the maximum interest rate earned and the principal may be at risk if the index performs poorly.

Question 17

Louise got caught in a cash flow trap and desperately needed money quickly. Unfortunately, she didn't shop around and she went to a _____. As a result, her annual percentage rate was higher than 780%!

Accepted Answer

Payday loan companies are known for charging incredibly high annual percentage rates, often exceeding 400%. In Louise's case, her APR was even higher, reaching a staggering 780%. It would have been better for her to explore other options, such as borrowing from friends or family or seeking assistance from a non-profit organization. Choosing a payday loan company in her desperate situation only worsened her financial situation in the long run.

Question 18

A drawback of a regular savings account is

Accepted Answer

The low rate of return is the main drawback of a regular savings account. They typically offer a low interest rate compared to other types of accounts, such as money market accounts or certificates of deposit.

Question 19

Will wants to open an account with $500 that will allow him easy access to his funds (by checks, ATMs, or debit card usage) from many locations. He also wants to earn at least a low interest rate and have federal deposit insurance. What kind of account should he open?

Accepted Answer

An interest-earning checking account would allow Will easy access to his funds through checks, ATMs, or debit card usage from many locations. It also earns interest, though typically a lower interest rate than other accounts like money market accounts. This kind of account also offers federal deposit insurance.

Question 20

Justin needs to have access to his money in five months. The best option for his savings is a

Accepted Answer

A money market account provides liquidity and typically allows for easy access to funds, making it suitable for short-term savings needs like Justin's five-month timeframe.

Quiz 4: Financial Services: Saving Plans and Payment Accounts

Another name for a regular savings account is a

The text discusses several types of bonds. Which bond, which is no longer sold, electronically deposits interest into your bank account every six months?

The text discusses several types of bonds. Which bond pays interest for 30 years that is exempt from state and local taxes?

Karen wanted a certificate of deposit that would definitely be available the entire length of time until maturity. She would NOT want to consider a

Earnings on savings can be measured by the

Earning interest on previously earned interest is called

Marcus bought a certificate of deposit whose interest rate is based on the stock market. Sometimes, his earnings are higher than other similar cds, and at other times, his earnings are lower. He purchased a

If you want to buy U.S. savings bonds, you may purchase them through

The text discusses several types of bonds. Which bond is purchased at face value and has two components to the rate of interest earned-a fixed rate and an inflation rate that changes twice a year?

A drawback of a regular savings account is

Wanda bought a certificate of deposit and automatically received a free bike. She purchased a

Why are some financial service operations referred to as financial supermarkets?

When Jack picked up a personal computer from the _____, he was really leasing it.

A certificate of deposit that has earnings based on the stock market is called a (n)

Louise got caught in a cash flow trap and desperately needed money quickly. Unfortunately, she didn't shop around and she went to a _____. As a result, her annual percentage rate was higher than 780%!

A drawback of a regular savings account is

Will wants to open an account with $500 that will allow him easy access to his funds (by checks, ATMs, or debit card usage) from many locations. He also wants to earn at least a low interest rate and have federal deposit insurance. What kind of account should he open?

Justin needs to have access to his money in five months. The best option for his savings is a