ECON Test

Compounding interest

Interest added back to the principal sum so that interest is earned on added interest on next compounding period

Liquidity

Ease of access to your money (high liquidity=low return)

Retail banks (most familiar)

Focus on local consumers as customers

Personal accounts: saving, checking, loans, small investments

Commercial banks

Focus on business loans

Investment banks

Banks that work with financial markets

Central banks

Manage monetary system

I.e: federal reserve

Credit unions

Non-profit banks owned by customers

Checking accounts

Highly liquid→ assets can be transferred into cash

Writing checks, ATM withdrawals

Usually no interest, additional fees (overdraft, minimum balance, non-participating ATMS)

Money market accounts

Invest in short term debt to earn greater interest, require higher minimum balances, limited check writing/month

Certificates of deposit (CD’s)

Issued by a bank to a person depositing money for a specified length of time (1 month-5 years)

Money cannot be accessed without incurring major penalties

401K/403B and IRA’s

Retirement accounts whose contributions are protected from taxation. Taxes will be taken out upon withdrawal

401K

Issued by private companies and can be invested in a variety of investments

403B

Same as 401K but issued by public companies

IRA

Individual retirement account

ROTH IRA

Taxed on income, put into ROTH and won’t have to pay taxes upon withdrawal

Formula

A=P(1+r/n)^nt

R→ not in % the decimal

APY→annual percentage yield

what you EARNED on savings, accounting for the effect of compounding

You want a high APY on savings

APR (annual percentage rate)

The cost to borrow money, including fees, without compounding

You want a low APR on loans

Student loans

Need to be repaid

Grants

Doesn’t need to be repaid

Scholarships

Based on merit

Work-study

Work grant in particular field of interest

Stanford loans

Subsidized or unsubsidized loans from federal government (subsidies postpone interest payments)

Ny neeed based grants

EOP→SUNY

HEOP→private NY schools

SEEK→CUNY

NY excelsior scholarship

put in 401k/retirement acc to quality on the verge

GL Bill

Benefit for college as a veteran, service member, or qualified dependents

Community college, 4 year university, graduate school, professional degrees

Typically 3-4 years of full tuition

Recruit officer training corps

3 branches of military

Pays for tuition while in school

Service is required after graduation

Does not count towards GL bill

Corporate employment educational benefits

Employer-funded programs helping employees gain skills or degrees, boosting engagement, retention, and productivity through tuition assistance (often up to $5,250 tax-free)