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Stocks 102: Make Compound Interest Work for You

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1.
Which of the following is used in the formula for determining compounded interest?
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All of the above. Principal, rate of return, and time periods are used in the compounding formula.
2.
Interest paid on savings accounts and bonds is generally taxable.
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True. Interest paid on savings accounts and bonds is generally taxable.
3.
By investing often while you earn compound interest, you can increase your total return. This is possible because frequent investing increases your _______.
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Principal. Frequent investing adds to the size of your principal, thus magnifying your return.
4.
Which of the following are not tax-sheltered investments you can use to compound interest?
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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.
5.
Compound interest is _______.
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Interest paid on both interest earned and principal. Because of the way compound interest works, your earnings grow faster than they would by simple interest alone.