Assignment 10: National and Global Finance

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1. Describe a real or made up but realistic situation that could cause you or someone you know to have to use money from a financial reserve. (3-6 sentences. 2.0 points) If someone were to have a sudden, serious illness that required a long hospital stay with large medical bills and left them unable to work, they would have to use money form a financial reserve like a savings account or pay 401k plan to pay the bills. 2. How many months' worth of expenses do you think your financial reserve should include? Describe at least two reasons for this decision. (3-6 sentences. 2.0 points) You should have a fully funded emergency fund of 3-6 months of living expenses. The reason for building up this reserve? With this reserve you're building your safety net against major life events so that you never have to go into debt again. When you have your 3-6 months saved there aren't very many things that can happen that you can't pay cash for outright. 3. Would you rather have a savings account that offered simple interest, or an account that offered compound interest? Why? (3-6 sentences. 2.0 points) Compound interest. While simple interest only pays interest on the amount that was originally invested, compound interest pays interest on the amount invested plus any interest earned. 4. If you were opening a savings account with compound interest, would you prefer an account that offers annual compounding, quarterly compounding, or daily compounding? Why? (3-6 sentences. 2.0 points) Daily because the greater the number of compounding periods, the better it is for your bottom line is with a savings account you are lending the bank money but with a mortgage they lend you money so conversely, you want as few compounding periods as possible. 5. Which strategy for saving do you think would work best for you? Why? (3-6 sentences. 2.0 points) The simple answer to

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