Income Beginner: Introduction to Certificates of Deposit (CDs)

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1.

The length of time for which a certificate of deposit stays in the financial institution contributes to the size of its interest or dividend rate.

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True

False

True. Length of time is one factor among many that determine interest or dividend rates.

2.

The alternative to a fixed-rate certificate of deposit (CD) is a(n) _________.

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Discount CD

Variable-rate CD

Add-on CD

Variable-rate CD. This rate changes periodically along with the market.

3.

You can buy negotiable certificates of deposit in any amount.

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True

False

False. You can buy them only in amounts over $100,000.

4.

A certificate of deposit of ________ is called a small-savings CD.

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$100,000 or more

Any amount

Less than $100,000

Less than $100,000. Small-savings CDs exist only in amounts less than $100,000.

5.

Compounding makes a yield _______ simple interest/dividends.

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Higher than

Lower than

The same as

Higher than. Compounding gives you additional earnings on top of the earnings youve already received.

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