Saving, Investing, Compounding & Risk — Drills · Grade 12 Social Studies

Chapter: Household Finance & Major Decisions

What these drills covers

By the end of Saving, Investing, Compounding & Risk you should be able to:

4 questions, written answer, each with a worked explanation.

Vocabulary used: stock, bond, diversification, nominal return, time horizon.

Problem 1

Why must an investment’s claim and liquidity be identified?
Answer and explanation

They determine rights, access, and relevant risks. Ownership, debt, and deposits differ, and a resource may lose value or be unavailable when needed. A higher advertised return does not resolve those conditions.

Problem 2

Why does the two-year compounded result exceed the simple-interest result?
Answer and explanation

The second year earns five percent on $1,050 rather than only the original $1,000. That adds $52.50 instead of $50. The $2.50 difference follows the constant-rate, no-cost model, not a promised market outcome.

Problem 3

Why should fee timing and calculation basis be specified?
Answer and explanation

A fixed dollar fee and a percentage charged on different balances can produce different outcomes. Define the balance, date, and excluded effects before calculating net return. Otherwise the comparison can overstate the amount retained.

Problem 4

Why can a portfolio with many holdings remain concentrated?
Answer and explanation

The holdings may share an industry, borrower, region, or common risk. Different names do not guarantee independent exposures. Diversification can reduce certain risks while leaving broad market and other losses possible.

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