Question 1

Which asset in the following list is the most liquid?

Accepted Answer

Funds in a checking account are the most liquid because they can be easily accessed and used to make purchases or pay bills.

Question 2

Which is not a general reason for holding cash?

Accepted Answer

Keeping up with inflation is not a general reason for holding cash. Cash loses value over time due to inflation, so it is not a good way to preserve wealth.

Question 3

The local credit union pays interest of 7% on amounts above $500 in a savings account. Because Gwen does not trust banks. She chooses not to have a savings account, and instead keeps $1,000 in cash in her home safe. What is Gwen's annual opportunity cost of keeping her money at home instead of putting it in a savings account at the credit union?

Accepted Answer

The answer of The local credit union pays interest of...

Question 4

Which is not an appropriate transaction account?

Accepted Answer

A Certificate of Deposit (CD) is not a transaction account; it's a savings product with a fixed term and interest rate, not meant for frequent transactions.

Question 5

Janice's monthly expenses are $6,000, and she has $10,000 in checking and savings. Which of the following is true about her financial situation?

Accepted Answer

Janice's monthly expenses are $6,000, and she only has $10,000 in checking and savings, which is less than two months' worth of expenses. It is generally recommended to have an emergency fund covering 3-6 months of expenses, so she should focus on increasing her emergency fund.

Question 6

A household with average household expenses of $3,000 a month should have a cash reserve for emergencies of at least

Accepted Answer

A common recommendation is to have a cash reserve that covers 3 to 6 months of expenses. For $3,000 a month, this would be $9,000 to $18,000. However, the closest option provided is $6,000, which is still a reasonable minimum for some emergencies.

Question 7

Setting up automatic bill payment whenever possible will help ensure that

Accepted Answer

Automatic bill payment ensures bills are paid on time, avoiding late fees and protecting your credit rating.

Question 8

The principle of paying yourself first means that you should

Accepted Answer

The principle of paying yourself first involves prioritizing savings and personal financial goals by setting aside money for them before spending on non-essential items.

Question 9

You need $25,000 in four years to start your own business. If you can earn 8% on your funds, how much do you need to invest today in order to reach your goal?

Accepted Answer

To find the present value, use the formula: PV = FV / (1 + r)^n. Here, FV = $25,000, r = 0.08, and n = 4. PV = $25,000 / (1.08)^4 = $18,376.

Question 10

A depository institution differs from a nondepository institution in that it gets its funds from _______, and its primary source of income is from __________.

Accepted Answer

Depository institutions, such as banks, get their funds primarily from customer deposits and earn income mainly through the interest on loans they provide to customers.

Question 11

Of the following, which is not a depository institution? (Select 2)

Accepted Answer

Mutual fund companies and life insurance companies are not depository institutions. Depository institutions include commercial banks, credit unions, online banks, and savings and loan associations, which accept deposits from customers.

Question 12

Depository institutions are considered less risky than nondepository institutions because ___________.

Accepted Answer

Depository institutions are considered less risky because the federal government insures limited deposits through programs like the FDIC, providing a safety net for depositors.

Question 13

Which of the following correctly describe credit unions? (Select 3)

Accepted Answer

The answer of Which of the following correctly describe credit...

Question 14

Credit unions are a unique type of depository institution because credit unions

Accepted Answer

Credit unions are nonprofit organizations, which distinguishes them from other depository institutions like commercial banks. They are owned by their members and typically offer lower fees and better interest rates.

Question 15

A ________ is an investment company that sells shares to investors, and then invests the pool of funds in stocks, bonds, or other assets.

Accepted Answer

A mutual fund is an investment company that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.

Question 16

The "Four Ps" to consider when choosing a financial institution include product, price, people, and

Accepted Answer

The "Four Ps" in marketing and business strategy typically refer to Product, Price, Place, and Promotion. In the context of choosing a financial institution, "Place" refers to the location and accessibility of the institution's services.

Question 17

Binh wants to earn interest on his savings account, and he is concerned about fees diluting his earnings. Of the four Ps, Binh is most concerned about

Accepted Answer

Binh is most concerned about "price" because fees are a cost that can reduce the interest earnings on his savings account.

Question 18

For an account that compounds interest more often than once per year, the annual percentage yield will be

Accepted Answer

When interest is compounded more frequently than annually, the annual percentage yield (APY) will be greater than the nominal yield because interest is being calculated on previously earned interest, leading to a higher effective yield.

Question 19

Bank A offers an account with a nominal yield of 2 percent, and it compounds interest monthly. Bank B offers an account with nominal yield of 2 percent, and it compounds interest daily. Which one has the higher APY?

Accepted Answer

Bank B has the higher APY because daily compounding results in more frequent application of interest, leading to a slightly higher effective yield compared to monthly compounding.

Question 20

An account that pays a nominal rate of 3% and compounds monthly will have an APY of

Accepted Answer

The answer of An account that pays a nominal rate...

Quiz 3: Budgeting and Cash Management