Written by Jimmy Becker

What’s your financial IQ?

And now for something a bit different from the topic du jour... This is the Financially Speaking Quiz — your opportunity to self-assess your financial IQ.

No calculators required and take all the time you need. You’ll find a link to the answers at the bottom of this page. Good luck.

1.  How does a SEP IRA differ from a regular IRA?

  1.  A SEP has no Roth option
  2.  A SEP may have a higher maximum contribution level
  3.  A SEP is for self-employment income
  4.  a, b, & c
  5.  What’s a SEP?

2.  You deposit $500 into a three-year CD with a 3% annual interest rate. To the nearest dollar, how much will you have at the end of three years?

  1.  $509
  2.  $515
  3.  $546
  4.  $575
  5.  I thought I’d never have to think about this again after Algebra 2

3.  If inflation is 3% per year, about how many years would it take for the cost of a cheeseburger to double? (Hint: the rule of 72)

  1.   6 years
  2.  12 years
  3.  18 years
  4.  24 years
  5.  I don’t care… I’m a vegan

4.  You are 67 years old and considering whether to claim Social Security benefits now or wait one year. If you delay, your benefit will be 8% larger next year. Approximately how many years do you need to live for a delay to have been a wise financial decision?

  1.  4 years
  2.  8 years
  3.  13 years
  4.  20 years
  5.  Always claim early — it never pays off financially

5.  You go to college and take out a $10,000 student loan every September for four years, for a total of $40,000 of borrowing. The interest rate on each loan is 5% and interest begins to accrue as soon as you borrow the funds. Approximately, how much will you owe on graduation day in May of your senior year assuming you made no payments over these four years?

  1.  $40,000, duh
  2.  $45,000
  3.  $50,000
  4.  $55,000
  5.  Doesn’t matter… you plan can discharge the debt in bankruptcy

6.  With a Traditional IRA, the IRS imposes required minimum distributions (RMDs) beginning in the year you turn 70 1/2. You must distribute at least this percentage from your IRA each year and pay tax on that amount. On what basis are these RMDs determined?

  1.  1 divided by your remaining life expectancy
  2.  your age minus 65 (in %)
  3.  5% of the balance every year
  4.  You can opt for either a, b, or c
  5.  WTF — none of the above

7.  A lifetime annuity, sometimes known as a single-premium immediate annuity (SPIA), gives you a monthly payment for the rest of your life, in exchange for a one-time lump-sum payment to an insurance company. In what circumstance(s) might this annuity make sense?

  1.  to obtain higher returns and lower risk than investing in bonds
  2.  to insure against a long life expectancy
  3.  to provide financial security to your dependents when you die
  4.  a & b
  5.  stay away — annuities are for losers

8.  Investing in long-term bonds generally makes the most economic sense when:

  1.  You expect inflation to be higher in the future
  2.  You expect interest rates to be higher in the future
  3.  You expect interest rates to be lower in the future
  4.  Interest rates on long-term bonds are higher than short-term CDs
  5.  A CNBC anchor proclaims it is not the time to buy bonds now

9.  If your investment drops 50% this year and then goes up 50% next year, how much will you have at the end of the second year?

  1.  1/2 of what you started with
  2.  3/4 of what you started with
  3.  right back to what you started with
  4.  double what you started with
  5.  trick question — you’d have nothing

10. Tulips, residential real estate, and bitcoin have, arguably, all been subject to speculative investment bubbles at one time or another. What characteristic(s) do they share that contributes to their vulnerability to an investment bubble?

  1.  it is not possible to sell short any of these assets
  2.  supply was constrained just when demand was high
  3.  there was insufficient government regulation
  4.  a, b, and c
  5.  they licensed the Trump brand

To see the answers, click here.


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