1.

The _______ you invest your money, the _______ compounding can work for you.

Earlier / More. Compounding expands your money greatly over time.

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.

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.

5.

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.