- If you invest $1,000 in a six-month Certificate of Deposit (CD) that pays 5% APY, how much interest will you have earned when your CD matures?
A) 2.5%
B) 4.5%
C) 5%
D) 5.25% - High-yield savings accounts offer higher interest rates than checking accounts. On average, how much higher do they pay?
A) 2 times more
B) 5 times more
C) 10 times more
D) 20 times more - Suppose you have $100 in a savings account, earning 2 percent interest a year. After five years, how much would you have?
A) Less than $110
B) $110.00
C) More than $110
D) I don’t know - What savings strategy will get you to $1 million by age 65, assuming 8% annualized returns?
A) Investing $200 per month starting at age 20
B) Investing $400 per month starting at age 30
C) Investing $800 per month starting at age 40
D) All are correct - How much money should you set aside in an emergency fund to handle unexpected expenses?
A) 1 month of living expenses
B) 1-3 months of living expenses
C) 3-6 months of living expenses
D) 8-12 months of living expenses - What is the general recommended percentage of gross income that should be invested for retirement?
A) 8%
B) 10%
C) 12%
D) 15% - What is the maximum amount of total debt (mortgage, auto, student loans, etc.) one should take on as a percentage of annual gross income?
A) 25%
B) 36%
C) 43%
D) 50% - Over the long term, what asset class has historically provided the highest rate of return on investment?
A) Bonds
B) Gold
C) Stocks
D) Real Estate
Answer Key
1) A – APY is an annual yield. A 6-month CD is invested for half a year. 5%/2 = 2.5%
2) D – Checking accounts have a historical average dividend of only 0.07% annually. High-yield savings accounts average 20 times that.
3) C – Because the interest made each year earns interest in all subsequent years, the annual interest paid increases every year.
4) A – More time in the market means greater compounding and better growth. The time value of money is often underestimated.
5) C – An emergency fund of 3-6 months of living expenses is recommended. Most Americans cannot afford an unexpected expense of $400.
6) D – 15% of gross income, including company match, is the general long-term recommendation.
7) C – Total debt should never exceed 43% of gross income. However, it is best to keep your debt-to-income ratio as low as possible.
8) C – Historically, stocks have been the highest-returning long-term investment on average, even beating the average return on real estate.
