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1.
The longer an investment is allowed to compound interest, the higher its return will be.
True. Although time wont affect the actual rate of return, the return itself will grow, and it will grow much larger than it would from simple interest.
2.
Which of the following are not tax-sheltered investments you can use to compound interest?
Municipal bonds. Tax-deferred retirement plans and deferred annuities provide compounding interest, but municipal bonds pay only simple interest. However, you can get the effect of compound interest with a municipal bond fund if you reinvest the dividends.
3.
By investing often while you earn compound interest, you can increase your total return. This is possible because frequent investing increases your _______.
Principal. Frequent investing adds to the size of your principal, thus magnifying your return.
4.
Which of the following is used in the formula for determining compounded interest?
All of the above. Principal, rate of return, and time periods are used in the compounding formula.
5.
Reinvesting your dividends helps you compound your earnings because it _______.
Builds your investment base. The larger your investment base, the more there is to compound.