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Econ Test
Taxes, Saving, & Investing Study Guide
| Question | Answer |
|---|---|
| What is the 1st rule of savings? | You must pay yourself before any other bills. |
| The concept of Compound Interest | interest earned on top of last years (& the years before that) interest. |
| Rule of 72 formula | 72 / interest rate |
| What does the rule of 72 show | how long it would take to double your money if it is left in an interest earing account |
| 1st question to ask before opening a savings account | How long will you be keeping the money in the account? |
| 2nd question to ask before opening a savings account | How often will you want to withdraw the money? |
| 3rd question to ask before opening a savings account | How much money will you keep in the account? |
| Basic savings account | has the lowest interest rate but fewer restrictions |
| Higher yield savings account | has higher interest rates but more restrictions |
| Certificate of deposite (CD) | earn higher interest rates than savings account, but is very difficult to withdraw (may come with a fee) |
| Bond | a company issues the bond with the promise of paying the money back to the buyer of the bond with additional money |
| 3 Components of a Bond | Face value, maturity date, coupon rate |
| Face value | total amount the issuer of the bond will repay to the buyer |
| maturity date | when the issuer of the bond must pay the buyer face value |
| coupon rate | the percent of face value that the bond buyer receives each year |
| Corporate bonds | issued by a private company |
| Municipal bonds | issued by state and/or local governments |
| Treasury bonds | issued by federal government (safe investment) |
| Stock vs. bond | buying a stock gives the buyer partial ownership and buying a bond is a debt instrument that makes the owner pay you back with interest |
| Why do we pay taxes | taxes pay for the government, the government then provides citizens with defense, transportation, education, a legal system (etc.) |
| Income tax | tax on a citizen's income, the main way our gov. is funded |
| sales tax | additional money applied to most things we buy (not food). They are mostly state and local taxes |
| Property tax | tax on people's home, pricier house = higher tax (usually goes toward education) |
| Proportional tax | flat tax. everyone pays the same percentage of income |
| Regressive tax | as income increases, a smaller percentage of income is taken. the more money you make the less money you pay towards taxes |
| Progressive tax | as income increases, a larger percentage of income is taken. the more money you make the more money you pay towards taxes. |
Created by:
CarlyStrahm
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