Finantial literacy saving and investing quiz
1. What does the term "compounding interest" refer to?
a) The interest earned on your initial investment
b) The repayment amount on a loan
c) The interest earned on both your initial investment and the interest previously earned
2. What is the recommended percentage of your income to save each month?
a) 5-10%
b) 15-20%
c) 30-40%
3. What is the general rule of thumb when it comes to emergency funds?
a) Save enough to cover 3 months of expenses
b) Save enough to cover 6 months of expenses
c) Save enough to cover a year's worth of expenses
4. What is the most common type of investment account?
a) Savings account
b) Certificate of Deposit (CD)
c) 401(k) retirement account
5. True or False: Stocks are considered a higher-risk investment compared to bonds or cash.
6. What is the stock market?
a) A physical place where stocks are bought and sold
b) A virtual marketplace where stocks are bought and sold
c) A government agency that regulates financial markets
7. What is the general term for a diversified investment portfolio managed by professionals?
a) Mutual fund
b) IRA (Individual Retirement Account)
c) Private equity
8. What does the term "diversification" mean in investing?
a) Spreading your investments across different asset classes and industries to reduce risk
b) Concentrating all your investments in a single asset to maximize returns
c) Investing in only one type of stock or bond
9. What is the difference between a traditional IRA and a Roth IRA?
a) Traditional IRAs allow for tax-deductible contributions, while Roth IRAs do not
b) Roth IRAs allow for tax-free withdrawals in retirement, while traditional IRAs are subject to taxes
c) Both a) and b) are correct
10. What is the general recommendation for investing in retirement accounts?
a) Start as early as possible and contribute regularly
b) Wait until you're closer to retirement to start investing
c) Only invest a small portion of your income in retirement accounts
Answers:
1. c) The interest earned on both your initial investment and the interest previously earned
2. b) 15-20%
3. b) Save enough to cover 6 months of expenses
4. a) Savings account
5. True
6. b) A virtual marketplace where stocks are bought and sold
7. a) Mutual fund
8. a) Spreading your investments across different asset classes and industries to reduce risk
9. c) Both a) and b) are correct
10. a) Start as early as possible and contribute regularly