Question

Steven can choose between two CDs offered by two different banks. One pays 5 percent simple interest and the other pays 5 percent compound interest. Which CD should he choose and why? (15 points)

II. Joan has been talking with her banker about interest rates. Her banker told her that the bank offers higher interest rates if she puts the money in a CD (Certificate of Deposit) than in a regular savings account. Why is the bank able to offer more interest on a CD than a savings account? (15 points)

III. The following 15 questions are worth 3 points each for 45 total points.

1. The chance that an investment will decrease in value is a _________.
a) trade b) risk c) choice d) certainty

2. The person who handles the transfer of stocks and bonds between buyer and seller is a ______.
a) stockbroker b) banker c) financier d) government employee

3. Joe bought 300 shares of stock last year at $3 per share and sold them today at $6 a share. His capital gain is _______.
a) $500. B) $300. C) $900. D) $600.

4. Capital gains are
a) proceeds from the sale of stock b) profit from the sale of stock c)proceeds from real estate sales d) profit minus sales fee for stocks

5. Sector funds are
a) aggressive funds b) international funds c) specific types of businesses funds d) bond funds

6. The income you earn on an investment is a ______.
a) growth b) return c) value d) risk

7. The sales fee you pay when you invest in a mutual fund is called a (n)________.
a) return b) cosign c) trust d)load

8. A company that specializes in helping people buy and sell stocks and bonds is a _________.
a) brokerage firm b) stock exchange c) inside trader d) Securities and Exchange Commission

9. A tax deferred retirement savings plan offered to employees by any employer is a (n) _____.
a) 401(k) b) 403(b) c) IRA d) exchange

10. A non-voting share that pays a fixed dividend is called _________.
a) common stock b) preferred stock c) mutual stock d) transferable stock

11. Insider trading is trading stock based on information available on the internet.
a) True or b) False

12. A savings plan with deferred tax benefits set up by an individual not the employer is called ______.
a) 403(b) b) IRA c) 401(k) d) REIT

13. You rent a living room chair from a Rent-To-Own company for $9.95 per week. The company says after 40 weeks you will own the chair. How much will this chair cost you?
a) $300. B) $350. C) $398. D) $412

14. The measure of credit worthiness is a ________.
a) credit listing b) credit debt c) ability to repay a loan d) credit charge

15. A savings plan with deferred tax benefits set up for teachers, ministers, hospital workers and some other public employees is a (an) _______plan.
a) 403b b) IRA c) 401K d) REIT

 
IV. Answer these short essay questions:

1. You buy 200 shares of stock at $5.00 per share. You receive one dividend of 20 cents per share. You sell the stock two years later for $6.00 a share. Fee for selling the stock online is $15.

What is the total profit you made on the entire transaction? Is this a long-term or short-term capital gain? (10 points)

2. You have a credit card that charges 18% per year interest or 1.5% per month. Interest is charged at the beginning of the month. You buy a TV for $1500 on the credit card, but at the end of the month you only pay $100. You continue to pay $100 the next month. You pay the entire balance in the third month.

How much did you pay the third month? (10 points)

How much total interest did you pay over the three months? (5 points)

Answer 1

1-	He should choose CD with compound interest because it results in more interest on initial investment because it has compounding effect means interest would be calculated on principal and interest earned.
	Bank offers higher interest rate on CD in comparison to saving account because investment in CD is made for a specific period and bank can invest that funds for long time period and can earn more return. In saving account money can be withdrawn any time due to which bank can not invest funds of saving account for long time period
1-	risk	because it is the probability that investment will not achieve the desired results
2-	stockbroker	stock broker deals in buying and selling of securities
3-	900	capital gain = (current market price*no. of shares)-purchase price of shares	(300*6)-900	900
4-	profit from the sale of stock	it is the difference between selling price and purchase price
5-	specific types of businesses funds	in sector funds, investments are made in the stock of a particular sector like infrastructure fund and gold fund
6-	return	it is the reward which you earn due to investment made
7-	load	load is a fee which is paid on selling of mutual fund units
8-	brokerage firm
9-	401(k)	this is the retirement plan offered by employer to employees. Only company employees can participate in it.
10-	preferred stock	these are special kind of stock which do not carry voting right but carries a fixed rate of dividend.
11-	FALSE	it takes place with the information which is not published or it is confidential among the company officials
12-	IRA	it is a saving plan with deferred tax benefits set up by individual not by the employer	individual retirement Account
13-	398	40*9.95
14-	ability to repay a loan
15-	403b