2.4.
3 Test (TST): Savings and Investing Test
Personal Financial Literacy Name: Emma Wright
Points Possible:60
Date:
Part I: Short-Answer Questions (40 points)
1. Complete the table to identify which of these options are interest-bearing accounts and which
are investments. (8 points)
Option Interest-bearing Investments
Savings account yes
Stocks yes
Certificate of yes
deposit
Bonds yes
Money market yes
account
Checking account yes
Mutual funds yes
Individual yes
retirement
account (IRA)
2. Pardis recently deposited $5,000 in a savings account that pays a return of 2 percent per year.
Explain why her investment will grow over the years. What opposing force will affect the value of
her investment? (8 points) Pardis's investment will grow over the years due
to the concept of compound interest. This is the process where the
interest earned on an investment is added back to the principal
amount, and then that combined amount earns interest in the next
period.
3. What is the difference between a low-risk investment and a high-risk investment? Write a
three- to four-sentence paragraph explaining the difference between the two and giving two
examples of each. (8 points) Low-risk investments, such as bonds and
savings accounts, tend to have lower returns but also lower volatility.
High-risk investments, such as stocks and real estate, tend to have
higher returns but also higher volatility.
4. What are the pros and cons of owning stocks and bonds? Identify two pros and two cons of
owning stocks and two pros and two cons of owning bonds. (8 points) In summary,
while stocks offer high return potential and ownership benefits, they
also come with high risks and market volatility. Meanwhile, bonds
provide steady income and lower risk but often at the cost of lower
returns and exposure to interest rate fluctuations.
5. Heayon has recently retired after years of hard work and smart planning. She has retirement
accounts from four different sources: the government, a former employer who matched her
retirement contributions, a former employer who guaranteed her a certain amount of money at
her retirement, and a retirement account she set up herself. Write a three- to four-sentence
paragraph identifying each of these account types and how they benefit Heayon. (8 points)
Heayon will have various accounts operating in the procedure which
are the retirement account, capital account , creditor's account and
his personal account.
The retirement account is a personal account in the books of
accounts, whereas the capital account and creditors account is the
business account operated by them. The personal account is where
all the amount is credited to the person's account which could be a
salary or normal savings account. The benefits received by heayon is
it will receive all the money of the service given and the emoluments
and perks at the time of retirement.
Part 2: Critical Thinking Question (20 points)
6. Ben has earned a good salary for many years and is ready to start investing. He is in his
mid-fifties and is interested in the bond market. He would like to make strong returns on his
investments in a short amount of time. Describe in detail all the steps Ben should take when
investing his money in the bond market. (20 points) Ben should determine his
investment goals and risk tolerance, research and select bonds,
diversify his portfolio, monitor and adjust the portfolio and consider
professional advice. By following these steps, Ben can build a well
rounded bond portfolio that aligns with his financial objectives
helping him to achieve his investment goals.
