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1.
A tax-sheltered account always protects your investment interest from taxes, even when you withdraw from it.
False. A tax-sheltered account lets interest grow within your account without taxes until it is withdrawn. Once it is withdrawn, it may be taxed.
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.
The amount of money you invest is called _______.
Principal. The invested amount of money is called principal.
4.
The Rule of 72 states that if you divide 72 by a given interest rate, you will learn how many years it will take for an investment to double. How long would it take for an investment with an interest rate of 4% to double?
18 years. Dividing 72 by 4 gives you 18.
5.
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.