Join the 4% Who Can Ace This Financial Quiz

When my 12-year-old niece started talking to me about tariffs last weekend, it became even clearer to me how much the economy is on everyone's minds. It is hard to avoid talk about inflation, trade, the strength of the dollar, stagflation, interest rates, and many other economic concepts that often aren't so top of mind in daily life. And since this talk is often caked in rhetoric, it's helpful to have a good understanding of the financial concepts underpinning many of our current headlines.

The FINRA Investor Education Foundation, a financial educational nonprofit, recently asked over 25,000 adults to test their knowledge of consumer finance. The results showed some gaps in knowledge about topics like interest rates, inflation, and compound interest, and as a result only about 4% of participants answered all seven of the test's questions correctly.

Here, you can try your hand at the quiz and check out our insights on the answers.

Question 1:

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

A) More than $102

B) Exactly $102

C) Less than $102

Answer to Question 1

Answer: ✅ A) More than $102

You start with $100 in a savings account. The account earns 2% interest per year.

The question asks: After five years, how much would you have?

Key point: The interest builds on itself each year — it's not just $2 each year (unless it were simple interest). In savings accounts, interest is typically compounded yearly.

• After 1 year:$100 × 1.02 = $102

• After 2 years:$102 × 1.02 = $104.04

• After 3 years:$104.04 × 1.02 = $106.12

• After 4 years:$106.12 × 1.02 = $108.24

• After 5 years:$108.24 × 1.02 ≈ $110.41

In short: Because of compounding, your money grows a little more each year, not just by $2 every year. That's why after 5 years you have more than $102 — actually over $110!

Question 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?

A) More

B) Same

C) Less

Answer to Question 2

Correct Answer:✅ C) Less

Let's break it down:

• Interest rate = 1% per year → your money grows by 1% in the bank.

• Inflation rate = 2% per year → prices of things go up by 2%.

  
  

After one year:

• Your money increases by 1%. So after 1 year $100 × 1.01 = $101.

• But prices increase by 2%. After one year (because of 2% inflation), prices would be $100 × 1.02 = $102

  
  

What does that mean?

• Your money is worth 1% more, but things cost 2% more.

• So even though you have a little more money, things have gotten even more expensive.

• You are $1 short — you cannot buy what you could have bought a year ago. Your money can't buy as much as it could before.

Summary: After one year, the money in the account would buy less than it does today, because prices are rising faster than your savings are growing.

Question 3:

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

A) Rise

B) Fall

C) Stay the same

D) There is no relationship

Answer to Question 3

Correct Answer: ✅ B) Fall

• Bonds are like IOUs — you lend money to a government or company, and they promise to pay you interest (called a "coupon") and repay you later.

• Interest rates determine how much a new bond will pay in interest to investors.

  
  

Now, if interest rates rise:

• New bonds will start offering higher interest payments.

• Your older bonds are less attractive because they pay the old (lower) rate.

• Therefore, to make the old bonds more appealing to buyers, their prices must fall.

  
  

Example:

• Suppose you own a bond that pays 2% interest.

• New bonds now pay 4% interest (because rates went up).

• Investors don't want your 2% bond unless it’s cheaper.

• So your bond’s price drops.

Question 4:

True or false: 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.

A) True

B) False

Answer to Question 4

Correct Answer: ✅ A) True

The question says:

• Compare a 15-year mortgage and a 30-year mortgage.

• Focus on two things:

  • Monthly payments

  • Total interest paid over the life of the loan.

    
    

Here's what happens in real life:

• Monthly payments on a 15-year mortgage are higher because you are paying off the same loan in half the time (15 years instead of 30).

• But because you're paying it off much faster — and usually at a lower interest rate — you end up paying less total interest over the life of the loan.

  
  

In short:

• Higher monthly payments ✔️

• Less total interest paid ✔️

Quick example:

Suppose you borrow $200,000:

• 30-year mortgage at 5% → Lower monthly payment (~$1,073) but you pay about $186,000 in total interest!

• 15-year mortgage at 4.5% → Higher monthly payment (~$1,530) but you pay only about $75,000 in total interest.

Question 5:

True or false: Buying a single company's stock usually provides a safer return than a stock mutual fund.

A) True

B) False

Answer to Question 5

Correct Answer: ✅ B) False

Here’s the key idea:

• If you buy one company's stock, all your money depends on that one company doing well.

  • If the company does poorly, you could lose a lot or even all of your investment.

  • High risk — because you’re not diversified.

    
    

• A stock mutual fund spreads your money across many different companies.

  • If one company does poorly, others might do well, helping balance things out.

  • Lower risk — because of diversification.

    
    

• Suppose in 2022, you had $1,000 to invest.

  Option 1: Buy a single company's stock (example: Tesla)

  • You put all $1,000 into Tesla stock.

  • In 2022, Tesla’s stock fell by about 65%.

  • Your $1,000 would have dropped to about $350!

  • Big loss — because you depended entirely on Tesla doing well.

    
    

  Option 2: Buy a stock mutual fund (example: S&P 500 index fund)

  • You put $1,000 into an S&P 500 mutual fund, which spreads your money across 500 major companies like Apple, Microsoft, Amazon, etc.

  • In 2022, the S&P 500 fell too, but by about 18%, not 65%.

  • Your $1,000 would have dropped to about $820.

  • Still a loss, but much smaller because you're diversified across many companies — some fall, some rise.

    
    

In short:

• Single stock = Riskier

• Mutual fund = Safer (because it's diversified)

Question 6:

Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn't pay anything off, at this interest rate, how many years would it take for the amount you owe to double?

A) Less than 2 years

B) 2 to 4 years

C) 5 to 9 years

D) 10 or more years

Answer to Question 6

Correct Answer: ✅ B) It would take about 3.6 years for the amount you owe to double.

You owe $1,000.The interest rate is 20% per year, compounded annually. You don't pay anything — the loan just grows with interest.

The question asks: How long until the debt doubles (from $1,000 to $2,000)?

Key idea: When something grows at a steady percentage, you can use a simple rule called the Rule of 72 to estimate doubling time:

• Rule of 72: Divide 72 by the interest rate to estimate the number of years it takes to double.

So here:

• 72 ÷ 20 = 3.6 years. It would take about 3.6 years for the amount you owe to double.

  
  

Quick math check:

Each year the debt grows by 20%:

• After 1 year: $1,000 × 1.20 = $1,200

• After 2 years: $1,200 × 1.20 = $1,440

• After 3 years: $1,440 × 1.20 = $1,728

• After 4 years: $1,728 × 1.20 = $2,073.60 (just over double!)

So between 3 and 4 years, the debt more than doubles — exactly what the Rule of 72 estimated!

Question 7:

Which of the following indicates the highest probability of getting a particular disease?

A) There is a one-in-twenty chance of getting the disease

B) 2% of the population will get the disease

C) 25 out of every 1,000 people will get the disease

Answer to Question 7

Correct Answer: ✅ A) One-in-twenty chance has the highest probability of getting the disease at 5%.

Option 1: One-in-twenty chance

• This means you have 1 chance in 20 of getting the disease.

• This is 5% because:1 ÷ 20 = 0.05 or 5% chance.

  
  

Option 2: 2% of the population will get the disease

• This is simply 2% chance of getting the disease.

  
  

Option 3: 25 out of every 1,000 people will get the disease

• This means 25 out of 1,000, which is:

  • 25 ÷ 1,000 = 0.025 or 2.5% chance.

    
    

Now, let's compare the probabilities:

• Option 1: 5% chance

• Option 2: 2% chance

• Option 3: 2.5% chance

So, how did you do? No matter how you scored, hopefully, you gained a nugget or two of knowledge to contextualize current events and make the most of your money!

Feel free to share this quiz or take a look at the original on FINRA's website here.