Can you answer these representative questions from the National Financial Literacy Challenge?

1. If you deposit $1,000 in a savings account with a fixed annual interest rate of 5%, how much will you have in your account after two years if you make no additional deposits or withdrawals?

A. exactly $100
B. exactly $1,100
C. less than $1,100
D. more than $1,100

2. Which is the most diversified investment?

A. a gold coin
B. a company stock
C. a municipal bond
D. a stock mutual fund

3. Person A adds $250 to her mutual fund every year for 10 years. Person B decides to wait 10 years when he knows he will have a lump sum of $2,500 to invest in a mutual fund. If both individuals earn, on average, a 7 percent rate of return, who will have the larger mutual fund balance in 20 years?

A. Person A, because she saved little each year
B. Person B, because his starting amount is bigger than Person A’s savings
C. Person A, because her money has grown for a longer time at compound interest
D. They would have the same amount because they invested the same amount of money

4. You have $400 in the bank and $50 in your wallet. You owe $3,000 on a car that is worth $4,000. Your other personal possessions are worth a total of $2,000. You also take home $800 per week from your job. From this information your wealth—or net worth—currently equals

A. $3,050
B. $3,450
C. $4,250
D. $7,250

5. What is an advantage of a fixed-rate mortgage over a variable-rate mortgage?

A. Fixed-rate mortgages generally have lower interest rates than variable-rate mortgages
B. Fixed-rate mortgages require lower down payments than variable-rate mortgages
C. Fixed-rate mortgages have interest rates that stay the same, but variable-rate mortgage payments may increase
D. Fixed-rate mortgages generally are written for a shorter period of time than variable-rate mortgages

Answers:
1. D
2. D
3. C
4. B
5. C

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