AnswersDRHS GA-GSE Personal Financial LiteracyUnit Test

Unit Test — Unit test Answers

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1
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Which of these affect real investment value? Check all that apply.fees and expensesinflationnominal interest ratepretax returnstaxes

A
fees and expenses
B
inflation
C
nominal interest rate
D
pretax returns
E
taxes
2
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Changes in monetary policy occur when the Federal Reserve

A
adjusts business laws to affect the money supply.
B
changes taxation levels to affect the economy.
C
changes spending levels to affect the economy.
D
adjusts interest rates to affect the money supply.
3

When discussing a loan, interest rates are expressed as a percentage of the

A
investment fees.
B
the principal.
C
the profit.
D
taxes owed.
4

How does time generally affect the risk of an investment?

A
Short-term investments are generally less risky than long-term investments.
B
Long-term investments are generally more risky than short-term investments.
C
Time has no effect on the risk of an investment.
D
Short-term investments are generally more risky than long-term investments.
5

Which investment is best for someone who is likely to need cash soon?

A
mutual fund
B
CD
C
401(k)
D
savings account
6

What is the relationship between risk and return?

A
A higher risk often means a higher return.
B
A lower risk always means a higher return.
C
A higher risk often means a lower return.
D
A lower risk will always mean a lower return.
7

Look at the table below showing an example of a checkbook ledger.

Question illustration
A
$761.25
B
$810.30
C
$814.75
D
$1,186.25
8

Changes in monetary policy have the greatest effect on

A
income tax rates.
B
service fees and expenses.
C
demand for investments.
D
government spending.
9

Which is an example of a high-risk investment?

A
stock in a start-up company
B
bond
C
CDs from an insured bank
D
401(k)
10

Which statement best describes how inflation affects the value of investments over time?

A
It erases the value of investments.
B
It increases the value of money.
C
It decreases the value of money.
D
It controls the value of investments.
11

Which characteristic is most important in determining an investment’s level of risk?

A
popularity
B
predictability
C
price
D
prominence
12

Which statements apply to a certificate of deposit (CD)? Choose two answers. It is always purchased as a short-term investment.It can be purchased from a banking institution.It is always purchased as a long-term investment.It can be purchased for almost any amount.It is purchased through an individual's employer.

A
It is always purchased as a short-term investment.
B
It can be purchased from a banking institution.
C
It is always purchased as a long-term investment.
D
It can be purchased for almost any amount.
E
It is purchased through an individual's employer.
13

An investment with a stable and predictable history will most likely have

A
no risk.
B
low risk.
C
medium risk.
D
high risk.
14

If an investor has a $5,000 pretax return, the state tax rate is 4.5%, and the federal tax rate is 22.0%, what is the real investment value?

A
$1,325
B
$3,675
C
$3,900
D
$4,775
15

actualfutureinflatedstated

A
actual
B
future
C
inflated
D
stated
16

What is the major difference between a nationwide bank and a community bank?

A
The community bank offers more services.
B
The nationwide bank services only local customers.
C
The nationwide bank has fewer branches.
D
The community bank services only local customers.
17

In what way does a 401(k) differ from an individual retirement account (IRA)?

A
A 401(k) is created through an individual’s employer.
B
A 401(k) can be created by individuals who deposit money.
C
A 401(k) allows consumers to contribute before taxes.
D
A 401(k) is a good long-term investment strategy.
18

What is the best reason for Jacinta to have a savings account in addition to a checking account?

A
A savings account accepts all direct deposits and processes all direct withdraws.
B
A savings account ensures she will never go into debt.
C
A savings account guards her money against inflation.
D
A savings account keeps her money safe and separate from her spending money.
19

The graph shows the effect of inflation.Approximately how much of the initial investment’s value would be lost after 15 years at 3% inflation?

Question illustration
A
15%
B
20%
C
40%
D
50%
20

The image shows Alex’s investments in one year. Investments during One Year

Question illustration
A
He should have invested in a commodity instead of a stock.
B
He would have lost more with a higher-risk investment.
C
He most likely would have benefited by diversifying.
D
He most likely would have profited by buying more of the stock.

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