FHCE 3200 Exam 3 UPDATED ACTUAL Exam Questions and CORECT Answers

FHCE 3200 Exam 3 UPDATED ACTUAL
Exam Questions and CORECT Answers
the possibility of losing money - CORRECT ANSWER risk



prices increase over time - CORRECT ANSWER inflation risk



a company in which you invest closes - CORRECT ANSWER business risk



general interest rates increase - CORRECT ANSWER interest rate risk



you cannot sell something you own due to a weak market - CORRECT ANSWER liquidity
risk


money you make on an investment - CORRECT ANSWER return



actual percentage return - CORRECT ANSWER nominal return



1% return for your bank account - CORRECT ANSWER nominal return



inflation-adjusted return - CORRECT ANSWER real rate of return



If prices increase by 3%, you really lose 2% in purchasing power - CORRECT ANSWER real
rate of return


Real rate of return formula - CORRECT ANSWER (1+nominal return)/(1+inflation rate) -1

,perception of the riskiness associated with a behavior or decision - CORRECT
ANSWER subjective risk


based on your personally developed probabilities of potential losses - CORRECT
ANSWER subjective risk



based on expectations, fears, and worries - CORRECT ANSWER subjective risk



varies from one person to another - CORRECT ANSWER subjective risk



ranking of risk using actual statistics - CORRECT ANSWER objective risk



can be measured using probabilities - CORRECT ANSWER objective risk



money put aside for short-term goals - CORRECT ANSWER savings



assets purchased to reach long-term goals - CORRECT ANSWER investments



how quickly you can convert an asset into cash - CORRECT ANSWER liquidity



cash in your pocket - CORRECT ANSWER liquidity



assets held in banks and credit unions - CORRECT ANSWER liquidity



usually generates lower returns - CORRECT ANSWER liquidity



What needs to be very liquid? - CORRECT ANSWER an emergency fund

,immediately accessible in case of unexpected expenses - CORRECT ANSWER emergency
fund


basic guideline- between 3 to 6 months of living expenses - CORRECT ANSWER emergency
fund


What are the 3 investment levels? - CORRECT ANSWER - Level 1: Setting the foundation
- Level 2: Investments
- Level 3: High-Risk investments


- very liquid and often insured assets

- savings and checking accounts and certificates of deposit - CORRECT ANSWER Level 1:
Setting the Foundation


- assets with potential to make a higher return over time

- mutual funds, stocks, and bonds - CORRECT ANSWER Level 2: Investments


- investments that can generate very high returns/losses

- gold or other commodities - CORRECT ANSWER Level 3: High-Risk Investments


commodities, collectibles, and speculative or highly volatile stocks - CORRECT
ANSWER Level 3: High Risk and Return


real estate, highly rates, stable individual stocks, exchange traded funds, and well-diversified
mutual funds - CORRECT ANSWER Level 2: Medium Risk and Return


treasury securities, certificates of deposit, money market accounts, U.S. savings bonds (EE and
I), and savings accounts - CORRECT ANSWER Level 1: Low Risk and Return

, a risk that results in an economic loss, such as needing to repair a car or replace a major
appliance - CORRECT ANSWER pure risk


contain easily accessible money that is specifically set aside to cover pure risk - CORRECT
ANSWER emergency fund


What are the steps in determining the amount of an emergency fund? - CORRECT
ANSWER 1. Estimate your monthly living expenses
2. Determine your monetary assets
3. Calculate your emergency fund ratio


1. Estimate your monthly living expenses - CORRECT ANSWER - minimum monthly dollar
amount you need each month
- all your expenses minus taxes, savings, and nonessentials
- essentials tend to be mortgage or rent, insurance, and car payments


2. Determine your monetary assets - CORRECT ANSWER cash, savings, and checking
accounts


3. Calculate your emergency fund ratio - CORRECT ANSWER divide monetary assets by
monthly living expenses


the loss of a benefit that you would have received by choosing another option - CORRECT
ANSWER opportunity cost


an interest-bearing asset that allows you to earn a small return on your deposit - CORRECT
ANSWER Savings Account



insured up to $250,000 for individuals - CORRECT ANSWER Savings account, money
market account, and Certificate of deposit (CD)