Savings/Investment Part 3

Question 1

Rank the types of common investment in order of high risk to low risk?

Answer 1

Share market, managed funds, superannuation funds, property, bank accounts

Question 2

If you have $100 in a savings account, earning 2% fixed interest per year, how much money would you have in total after 5 years?

Answer 2

More than $110

Question 3

If you earn 10% simple interest per year, how many years will it take for you to double your money?

Answer 3

10 years

Question 4

Which type of return may purchasing a piece of artwork and displaying it in your own home hoping it will increase in value provide?

Answer 4

Capital gain

Question 5

What percentage of your income should you aim to save?

Answer 5

10%

Question 6

What will be a consequence of increasing interest rates?

Answer 6

Savings will increase

Question 7

What does ASX stand for?

Answer 7

Australian Stock Exchange

Question 8

What benefits would a government gain from investing in health, infrastructure and education?

Answer 8

Jobs will be created, employees will pay income tax, less welfare paid to unemployed, increased spending may occur and increased GST paid

Question 9

What are the benefits to society of government investment?

Answer 9

A return of the budget to surplus, more jobs being created, lower taxes and a guarantee of essential services

Question 10

What is inflation?

Answer 10

A general increase in prices and fall in the purchasing value of money

Question 11

How does inflation affect savings?

Answer 11

The value of savings decreases over time, and people are better off investing or spending their money rather than saving it, in order to keep up with inflation

Question 12

What type of interest loan does a graph with a straight horizontal line demonstrate?

Answer 12

An interest only loan, because you do not pay off any principle until the end end of the loan term

Question 13

What does a credit limit on a credit card statement imply?

Answer 13

The most you can spend on a credit card and you will not be allowed to go over the limit

Question 14

What is an interest only loan?

Answer 14

Where you only pay interest and do not decrease the principle

Question 15

What is an interest and principle loan?

Answer 15

When you repay some of the principle along with interest on the outstanding amount?

Question 16

What is the difference between an interest only loan and an interest and principle loan?

Answer 16

An interest only loan has lower repayments, but will cost you more overall, whereas an interest and principle loan has higher repayments, but will be cheaper overall

Question 17

What are some factors which have led to a decrease in housing affordability?

Answer 17

The prices of houses have increased at a greater rate than incomes and lower income rates have led to more people borrowing money. This means that people are giving up a greater portion of their income to pay off mortgages.

Question 18

Why would a growth option superannuation fund not suit a 56 year old who is close to retiring, and what would a more suitable investment option be?

Answer 18

A person who is about to retire cannot afford to take financial risks as they cannot recuperate any losses. They could invest in a savings or term deposit account instead.

Question 19

In relation to the share market, what is the difference between capital gain and dividends?

Answer 19

Capital gain is when the value of the share has increased since it was purchased, whereas dividends are when the company pays you a percentage of their profit

Question 20

If machinery tends to lose value over time and provides no capital gain, why is it classified as an investment by some?

Answer 20

It can be used in the production process to manufacture items that can be later sold for a profit, therefore it can be classed as an investment, such a machine in a factory

Question 21

What does being asset rich and income poor mean, and provide an example?

Answer 21

Someone who earns little to no income, but owns a lot of assets such as investments and properties. A retired person who owns their own homes is asset rich, income poor