MTH1W · Unit 8 test review

Financial Literacy: Test Review

Everything for the Unit 8 test on one page: the key facts from all 4 lessons, the mistakes that cost the most marks, and a practice test that points you back to the lessons you need.

Key facts

Making Financial Decisions

Inflation is a general rise in prices over time; it lowers the purchasing power of each dollar.
Canada's CPI (Statistics Canada) prices one basket of goods and services; the 2002 cost is set to 100.
Inflation rate $= \frac{CPI _{new} - CPI _{old}}{CPI _{old}} \times 100% .$
Price in another year $\approx$ price $\times \frac{CPI _{new}}{CPI _{old}}$ ; round money to the nearest cent at the end.
Yearly inflation rates combine by multiplying (1.068 × 1.039), not by adding.
Compare options on the same basis: same time period, same amount, same taxes.

Appreciation and Depreciation

Straight-line depreciation: $V = P - d t$ (same dollar loss $d$ each year; graph is a straight line).
Yearly straight-line loss with a salvage value: $d = \frac{P - S}{n}$ .
Percent depreciation: $V = P (1 - r)^{t}$ (same percent loss each year; curve that flattens).
Appreciation: $V = P (1 + r)^{t}$ (same percent gain each year; curve that gets steeper).
Losing $r$ per year means multiplying by $1 - r$ ; losing 15% means $\times 0.85$ , not $\times 0.15$ .

Interest and the Cost of Borrowing

Simple interest: $I = P r t$ and $A = P + I$ (interest on the original principal only; $t$ in years).
Compound interest: $A = P (1 + i)^{n}$ , with $i$ the rate per period and $n$ the number of periods.
Monthly compounding: $i = \frac{yearly rate}{12}$ and $n = 12 \times$ years.
Simple interest grows in a straight line; compound interest grows by a constant multiplier and curves upward.
Higher rate, longer time and a smaller down payment all raise the total cost of borrowing.
Credit cards: pay the full balance by the due date to use the grace period of at least 21 days on new purchases.

Building and Adjusting a Budget

Gross pay = hourly wage × hours; net pay = gross pay − deductions (income tax, CPP, EI). Budget with net pay.
Monthly pay $= \frac{weekly pay \times 52}{12}$ (about 4.33 weeks per month).
Percent of income $= \frac{amount}{net income} \times 100%$ ; all the categories together make 100%.
Fixed expenses stay the same each month; variable expenses change with your choices; savings are kept on purpose.
A balanced budget: net income = expenses + savings. Income above spending is a surplus; below is a deficit.
When income falls or a cost rises, find the shortfall first, then adjust variable spending and savings until the budget balances.

Where marks get lost

Adding yearly inflation rates (6.8% + 3.9% = 10.7%) instead of multiplying the multipliers (1.068 × 1.039 ≈ 1.110). (Making Financial Decisions)
Reading a CPI of 160.9 as "every item costs 60.9% more". The CPI is an average for a whole basket; single prices rise faster, slower or even fall. (Making Financial Decisions)
Dividing by the new CPI when finding an inflation rate. A percent change always divides by the old (starting) value. (Making Financial Decisions)
Thinking that lower inflation means prices went down. When inflation falls from 6.8% to 3.9%, prices are still rising, just more slowly. (Making Financial Decisions)
Comparing a monthly cost with a yearly cost, or a taxed price with an untaxed one. Put both options on the same basis first. (Making Financial Decisions)
Adding the percents: treating 5 years of 20% depreciation as a 100% loss. Each year's 20% is taken from a smaller value, so multiply: 0.8 to the power 5 is about 0.328. (Appreciation and Depreciation)
Multiplying by the rate instead of the multiplier: 28000 × 0.15 gives the first year's loss (4200 dollars), not the value. The value after one year is 28000 × 0.85. (Appreciation and Depreciation)
Using 1 + r for depreciation or 1 − r for appreciation. Depreciation shrinks the value (multiplier below 1); appreciation grows it (multiplier above 1). (Appreciation and Depreciation)
Rounding the multiplier or a power too early (using 0.61 for 0.85 cubed), which can throw the final value off by many dollars. Round to the cent only at the end. (Appreciation and Depreciation)
Assuming something will keep appreciating at the same rate forever. Real prices can level off or fall, so a fixed-rate model is only an estimate. (Appreciation and Depreciation)
Using the rate as a percent instead of a decimal: 2500 × 4 × 3 instead of 2500 × 0.04 × 3. (Interest and the Cost of Borrowing)
Using months for t in I = Prt with a yearly rate. Convert months to years first (18 months = 1.5 years). (Interest and the Cost of Borrowing)
With monthly compounding, using the yearly rate for i or the number of years for n. Divide the rate by 12 and multiply the years by 12. (Interest and the Cost of Borrowing)
Forgetting to add the principal: I = Prt is only the interest; the amount is A = P + I. (Interest and the Cost of Borrowing)
Thinking a credit card charges no interest as long as you make the minimum payment. The grace period on new purchases applies only when the full balance is paid by the due date. (Interest and the Cost of Borrowing)
Building a budget on gross pay. Deductions come off first, so you only have your net (take-home) pay to spend and save. (Building and Adjusting a Budget)
Changing weekly pay to monthly pay by multiplying by 4. Use × 52 ÷ 12, because most months are a little longer than 4 weeks. (Building and Adjusting a Budget)
Finding a percent of income by dividing by the wrong number: always divide the category amount by the net income. (Building and Adjusting a Budget)
Cutting only one category to fix a shortfall without checking the total. After every change, check that income = expenses + savings. (Building and Adjusting a Budget)
Treating savings as whatever is left over at the end of the month. Without a planned amount, there is often nothing left. (Building and Adjusting a Budget)

Practice test

24 questions from across the unit. Each one shows the lesson it comes from.

Making Financial Decisions
1
Canada's annual average CPI was 157.1 in 2023 (2002 = 100). What does this mean?
Making Financial Decisions
2
The CPI was 151.2 in 2022 and 160.9 in 2024. What was the inflation rate over those two years? Round to one decimal place.
%
Making Financial Decisions
3
Which of these is most clearly a want rather than a need?
Making Financial Decisions
4
What is the name for what you give up (the next best use of your money) when you make a spending choice?
Making Financial Decisions
5
Put these headphone options in order from lowest to highest cost per year of use.
1. 1$60 pair that lasts 2 years
2. 2$200 pair that lasts 5 years
3. 3$35 pair that lasts 1 year
4. 4$90 pair that lasts 4 years
Making Financial Decisions
6
What yearly inflation rate does the Bank of Canada aim for?
Appreciation and Depreciation
7
A bike costs $600 and depreciates by $75 each year (straight-line). What is it worth after 4 years?
$
Appreciation and Depreciation
8
A graph of an item's value over time is a curve that drops steeply at first and then flattens out. Which model fits it?
Appreciation and Depreciation
9
A painting is bought for $2,000 and appreciates 5% per year. What is it worth after 3 years? Round to the nearest cent.
$
Appreciation and Depreciation
10
What is the name of the depreciation model in which an item loses the same dollar amount every year?
Appreciation and Depreciation
11
Match each formula with the situation it models (P is the starting value).
$V = P - 500 t$
$V = P (0.95)^{t}$
$V = P (1.05)^{t}$
$V = P + 500 t$
Appreciation and Depreciation
12
A $20,000 car loses 20% of its value each year. After how many whole years is it first worth less than $10,000?
years
Interest and the Cost of Borrowing
13
How much simple interest does $800 earn in 3 years at 5% per year?
$
Interest and the Cost of Borrowing
14
You invest $3,000 at 5% per year compounded annually for 4 years. What is the amount? Round to the nearest cent.
$
Interest and the Cost of Borrowing
15
You put $1,000 in an account for exactly 1 year at 6% per year. How do simple interest and interest compounded annually compare?
Interest and the Cost of Borrowing
16
What type of interest earns interest on previously earned interest?
Interest and the Cost of Borrowing
17
You borrow $5,000 for 2 years. Put these loans in order from least to most total interest.
1. 14% per year compounded annually
2. 26% per year compounded monthly
3. 36% simple interest per year
4. 44% simple interest per year
Interest and the Cost of Borrowing
18
Using the rule of 72, about how long does money take to double at 8% per year compounded annually?
Building and Adjusting a Budget
19
You work 20 hours in a week at $16.90 an hour. What is your gross pay for the week?
$
Building and Adjusting a Budget
20
Which of these is a fixed expense?
Building and Adjusting a Budget
21
Using the 50 30 20 guideline, how much of a $2,200 monthly net income would go to savings and paying down debt?
$
Building and Adjusting a Budget
22
Rent of $1,400 a month rises by 2.1%. What is the new monthly rent? Round to the nearest cent.
$
Building and Adjusting a Budget
23
Your income has just dropped. Put the steps for adjusting your budget in order.
1. 1Check that income equals expenses plus savings
2. 2Cut variable spending and savings to cover the shortfall
3. 3Compare what is left with planned variable spending and savings to find the shortfall
4. 4Write down the new monthly net income
5. 5Subtract the fixed expenses from the new income
Building and Adjusting a Budget
24
What is the name for savings kept aside to cover unexpected costs, such as a broken phone or a lost shift?

Endless drill

Fresh numbers every time, for the calculation questions in this unit.

Endless drillnew numbers every time

Generating a problem…