Financial Literacy Exam Quiz! Trivia

1. Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have?

More than $102

Exactly $102

Less than $102

Don’t know

If the interest was only compounded annually, the amount in the savings account would be $110.41 after five years.

Explanation

If the interest was only compounded annually, the amount in the savings account would be $110.41 after five years.

2. Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today?

More

Same

Less

Don't know

In this example, a $100 savings account would have a value of $101.00 after one year, but because of inflation, its buying power would only equal $98.98 in today's dollars.

Explanation

In this example, a $100 savings account would have a value of $101.00 after one year, but because of inflation, its buying power would only equal $98.98 in today's dollars.

3. A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less.

True

False

Don't know

On a $100,000 mortgage at 5.00%, the 15-year term has monthly payments of $790.79, total interest paid $42,343. The same mortgage over a 30-year term has monthly payments of $536.82, but the total interest paid is $93,256, over twice as much.

Explanation

On a $100,000 mortgage at 5.00%, the 15-year term has monthly payments of $790.79, total interest paid $42,343. The same mortgage over a 30-year term has monthly payments of $536.82, but the total interest paid is $93,256, over twice as much.

4. Buying a single company's stock usually provides a safer return than a stock mutual fund.

True

False

Don't know

Stock mutual funds are designed to lessen the risk of owning individual stocks by diversifying investments across many stocks and through the use of professional fund managers.

Explanation

Stock mutual funds are designed to lessen the risk of owning individual stocks by diversifying investments across many stocks and through the use of professional fund managers.

5. If your investment loses 20% of its value, what percentage of return will you need to break even?

20%

More than 20%

Less than 20%

Don't know

If you invested $1000 and incurred a 20% loss, your investment would then be worth $800. To get back to your original $1000 value, you would need a gain of $200, which would be $200/$800 x 100 = 25% gain.

Explanation

If you invested $1000 and incurred a 20% loss, your investment would then be worth $800. To get back to your original $1000 value, you would need a gain of $200, which would be $200/$800 x 100 = 25% gain.

6. You invested $1,000 in stock two years ago. The stock's trading price declined 40% in the first year and rose 40% the next year. As a result, you have:

Lost money

Made money

Broken even

Don’t know

This question is similar to the previous one on the breakeven percentage. A 40% decline on $1000 would leave you at $600 after the first year. A 40% gain in the second year would only net an additional $240, giving you a final balance of $840. You would need a gain of 67% to get back to your original investment.

Explanation

This question is similar to the previous one on the breakeven percentage. A 40% decline on $1000 would leave you at $600 after the first year. A 40% gain in the second year would only net an additional $240, giving you a final balance of $840. You would need a gain of 67% to get back to your original investment.

7. If interest rates rise, what will typically happen to bond prices?

Rise

Fall

Stay the same

No relationship

Don't know

For bonds previously issued on the open market, bond prices typically move inversely to interest rates. When interest rates go up, bond prices generally fall.

Explanation

For bonds previously issued on the open market, bond prices typically move inversely to interest rates. When interest rates go up, bond prices generally fall.

8. Index mutual funds are:

Funds indexed to keep up with inflation

Groups of stocks in a particular market sector, like technology

Mutual funds designed to mimic an Index, like the S&P 500 Index

Don’t know

Index funds seek to match the movements of a specific market index. Although they may have lower fees, they are not designed to limit losses on the index they follow.

Explanation

Index funds seek to match the movements of a specific market index. Although they may have lower fees, they are not designed to limit losses on the index they follow.

9. Mutual funds are protected from market losses by:

The Securities Investment Protection Corporation (SIPC)

The Federal Deposit Insurance Corporation (FDIC)

Mutual Fund Insurance Corporation (MFIC)

None of the above

Don’t know

Market losses are not covered by insurance. Many mutual funds carry SIPC insurance, but it only protects an investor against investment house fraud and mismanagement, not market losses.

Explanation

Market losses are not covered by insurance. Many mutual funds carry SIPC insurance, but it only protects an investor against investment house fraud and mismanagement, not market losses.

10. You can't lose money investing in which of the following:

Diversified mutual funds

Securities backed by home mortgages

US Treasury bonds because they are backed by the US Government

Investment-Grade bonds from Fortune 500 companies

None of the above

Don’t know

Nearly all investments have some risk of loss, including government-backed bonds. JP Morgan estimates that a 1% rise in interest rates could result in as much as a 20% fall in 30-year Treasury Bond prices.

Explanation

Nearly all investments have some risk of loss, including government-backed bonds. JP Morgan estimates that a 1% rise in interest rates could result in as much as a 20% fall in 30-year Treasury Bond prices.

11. Which of the following Treasury bonds would be impacted more by a change in interest rates?

5 year

10 Year

30 Year

They would all be impacted about the same

Don’t know

It is estimated that a 1% interest rate change would impact 5-year Treasury bond yields by 3.7%. 10-year by 9.2% and 30-year by 20.3%.

Explanation

It is estimated that a 1% interest rate change would impact 5-year Treasury bond yields by 3.7%. 10-year by 9.2% and 30-year by 20.3%.

12. An investment's maximum decline from a previous peak in value is known as its:

Loss ratio

Drawdown

Negative gain

Don't know

Quoted as a percentage, drawdown helps define an investment's level of risk. For example, a peak-to-trough loss of $200 from a $1000 investment would be a 20% drawdown.

Explanation

Quoted as a percentage, drawdown helps define an investment's level of risk. For example, a peak-to-trough loss of $200 from a $1000 investment would be a 20% drawdown.