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

Chapter: Household Finance & Major Decisions

What this practice covers

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

8 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.

Problem 5

Invented model: $1,000 starting amount; five percent annual compounding for two years; no fees, tax, additions, withdrawals, or loss. Calculate the balance and distinguish it from a forecast.
Answer and explanation

The balance is $1,102.50, including $102.50 modeled growth. Simple interest under the comparison gives $1,100. The $2.50 difference comes from growth on prior growth. The model assumes a constant positive rate and excludes actual risk, costs, tax, and inflation; it is not a promised return or an instruction to choose an investment.

Apply 1.05 twice.

Compare with $1,100 simple-interest total.

State excluded risks and costs.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 6

Does diversification guarantee no loss?
Answer and explanation

No. It can reduce some concentration risks, while common market changes, liquidity, credit, inflation, or fees can still matter. Explain exposures and conditions rather than treating the number of holdings as a guarantee.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 7

Invented $200 grows five percent annually for two years without costs or changes. Calculate the final balance.
Answer and explanation

The balance is $220.50 from $200×1.05×1.05. It follows a constant-rate model, not a guaranteed investment result. Actual losses, fees, tax, inflation, timing, and liquidity are excluded.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 8

Invented one-year $500 investment gains $25 and pays a $5 fee. Calculate the net money return before excluded effects.
Answer and explanation

The ending value is $520 and net gain $20, or four percent of the initial $500 under these dollar-cost assumptions. Inflation and tax are excluded; differently timed or based fees would require another calculation.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

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