Assignment 4: Saving and Investing

Assignment 4: Saving and Investing

(32.0 points)

1. Describe a real or made up but realistic situation that could cause you or someone you know to have to use money from a financial reserve. (3-6 sentences. 2.0 points)

Having to buy a new car is an example. Another would be if someone in the family gets extremely sick and they have many doctor bills.

2. How many months' worth of expenses do you think your financial reserve should include? Describe at least two reasons for this decision. (3-6 sentences. 2.0 points)

I think 6 months is a good amount incase you lose you job. This way you have money to live off until you get another job. Another reason is if there was a fire or disaster because insurance only covers so much.

3. Would you rather have a savings account that offered simple interest, or an account that offered compound interest? Why? (3-6 sentences. 2.0 points)

I'd prefer compound interest. Over time the compound interest will build up more interest into the account. After awhile you make interest on the interest you already have gotten.

4. If you were opening a savings account with compound interest, would you prefer an account that offers annual compounding, quarterly compounding, or daily compounding? Why? (3-6 sentences. 2.0 points)

I would want quarterly compounding because since it happens more often the interest turns to principal faster so it earns interest and the principal increases faster.

5. Which strategy for saving do you think would work best for you? Why? (3-6 sentences. 2.0 points)

I think paying myself would work best for myself because if I kept the money I would forget to pay myself and spend the money elsewhere.

6. Describe two financial goals that you would want to meet before you begin investing. Explain why you would want to reach those goals first. (2-4 sentences. 2.0 points)

I would want to have a budget set aside for housing and educational needs. Also I would want to have a financial reserve. I would need these before investing so I don't have the risk of losign everything and so I don't spend to much.

7. Describe at least two factors of an investment that you would want to consider before putting money into that specific investment. (2-4 sentences. 2.0 points)

Before you invest your money into something you should know the business. Know what they do and what their plans are. You also should know who runs the business to know if they are trustworthy and reliable.

8. Calculate the return on investment in dollars and as a percentage for an investment that you purchase for $500 and sell for $600. (2.0 points) TIP: If you don't remember how to calculate return on investment, review the Calculating ROI pages in Section 4, Lesson 2.

$100

20%

9. Describe two examples of debt investments. (1-2 sentences. 1.0 points)

Loans and Bonds are two types of debt investments. This is because you spend money on them both and expects to receive the same amount, or more, money in return in the future from it.

10. Describe two examples of equity investments. (1-2 sentences. 1.0 points)

A stock and real estate are both equality investments.

11. If you were a new investor