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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. 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)

3. Would you rather have a savings account that offered simple interest, or an account that offered compound interest? Why? (3-6 sentences)

Respuesta :

nbrantle56
1.A realistic situation in which can cause someone to use money from a financial reserve is to payoff a medical bill. Another situation would be if say, you had to pick up and move. You would need enough money to not only purchase your residence, but also movers, necessities, and they deposit.

2. The financial reserve should have enough money to last a at least 6 months. There should definitely be enough money to purchase food and necessities. Depending on how big your family is and how much you spend affects the duration of the amount of funds. Also what you choose to spend your money on is a big key factor.

3. I would rather have a compound interest when it comes to a savings account.An account with simple interest will take money from you, rather than save it. When it comes to putting money into an account that offers interest, you want to get the highest interest rate possible, so that your money grows as fast as possible. A compound interest will “compact” your money as much as possible, saving you more.

To find : Situation needing utilisation of Financial Reserves, sufficient financial reserves in relation to Monthly Expenses ; Preference between Saving & Compound Interest

1] A situation that could lead to a person using financial reserves - is a period of low income growth accompanied by a family member or acquaintance suffering from catastrophic illness.

Such situation creates financial (medical) expenditure ie over burdened by mild economic growth. So, the person has to use financial reserves.

2] Well defined strategic measure of financial reserves should be maintained to overcome such situation. A person should have financial reserves of at least 6 - 9 months.

This would make him/ her self sufficient, would not arise need to borrow funds. This would ensure smooth standard of living maintainence in period of adversities.

3] Interest is the income on money deposited. Simple Interest is only on the principle amount, Compound Interest on principle as well as preceding periods' Interest amount.

So, Compound Interest is higher & should be preferred.

To learn more, refer https://brainly.com/question/3442092?referrer=searchResults

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