Question 2: Personal Finance

Devon chooses where to keep college savings

Unit 3
3 points
About 13 minutes

You can use a calculator on this question, just like on exam day.

A short scenario about a person's or household's money, with numbers and goals: you read the data (for example, total assets versus total liabilities), describe a challenge or opportunity, and explain an action that would help them reach a goal. On the exam: Question 2 of 4, Section IIB (Questions 2–4 share 65 minutes); suggested time 12–13 minutes, 5% of the score. Assesses Skill Categories 1 and 3. Section II has 4 free-response questions in 90 minutes (40% of the score). The exam is fully digital in Bluebook, and only a 4-function calculator is allowed (handheld or the built-in Desmos 4-function calculator).

The question and its sources

Respond to parts A, B, and C. Devon has come to you, a financial advisor, for guidance.

Devon's situation

Devon, 17, has saved $5,000 from summer jobs. He will start college in exactly one year and plans to use the money then for his first-year costs. He won't need it before then.

Right now the money sits in a payment app's balance, where he can spend it instantly. Devon admits he often makes unplanned purchases through the app. He also earns about $600 a month at a part-time job.

Prices have been rising at about 3% a year (an example inflation rate). Devon's goal is to keep at least $5,000, plus whatever it earns, safe and ready for college in one year.

Table 1 shows the options Devon is comparing.

Source: Hypothetical person and figures written for this practice question

Table 1. Devon's options (example rates)

Option	Annual percentage yield (APY)	Minimum deposit	Fees or limits	Federally insured?
Savings account at a credit union	0.50%	$5	No monthly fee; withdraw anytime	Yes
Money market account at a bank	3.25%	$2,500	$12 monthly fee if the balance falls below $2,500	Yes
12-month certificate of deposit (CD) at a bank	4.00%	$1,000	Penalty of 3 months' interest for withdrawing early	Yes
Payment app balance (current)	0%	No minimum	Can be spent instantly	No

Source: Hypothetical data written for this practice question

Suggested time: 13 minutes

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Part (A)

1 point

Using data from the scenario, calculate how much more interest Devon would earn in one year by keeping $5,000 in the 12-month CD instead of the savings account. Show your work.

Your answer to part (A)

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Part (B)

1 point

Describe one financial challenge or opportunity in the scenario that is affecting Devon's ability to achieve his financial goal right now.

Your answer to part (B)

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Part (C)

1 point

Explain how one specific step Devon could take would help him achieve his financial goal.

Your answer to part (C)

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