It Is Better to Use Your Savings Instead of Borrowing

question 79

Multiple Choice

It is better to use your savings instead of borrowing to make a purchase when:

• A) you have adequate savings.
• B) interest rates are rising.
• C) interest rates are falling.
• D) the cost of borrowing is much greater than the interest earned on savings.
• E) the interest earned on savings is greater than the interest paid on the loan.

---

Definitions:

Compounded Annually

The calculation of interest on both the initial principal and the accumulated interest from previous periods on a yearly basis.

Yearly Contributions

The total amount of money added to a fund or investment over the course of a year.

Rate of Interest

The percentage of a sum of money charged for its use, often expressed annually.

Compounded Semi-Annually

Interest on an investment or loan calculated twice a year and then added to the principal amount, affecting future interest calculations.