Question 1

Suppose you have some money to invest. Is it safer to invest your money into one business or investment, or to invest your money into multiple businesses or investments?

Accepted Answer

multiple businesses or investments. This question focuses on testing your knowledge around risk diversification. Putting all your money in one business is like putting all the eggs in the same basket. If the business goes down, you will lose all your money. However, if you spread your money across multiple businesses or investments, the chance of all of them going down is significantly lower. Hence, it is safer to spread your wealth in multiple investments.

Question 2

Suppose, in 10 years, your income doubles but the prices of the things you buy also double. Will you be able to buy more than you can buy today, the same as you can buy today, or less than you can buy today?

Accepted Answer

the same. This is a basic numeracy question. $100 plus 3% is equivalent to $100 × 1.03 , which equals to $103. Since $103 is lower than $105,  $100 plus 3% is the lower amount to pay back.

Question 3

Suppose you need to borrow $100. Which is the lower amount to pay back: $100 plus 3% or $105?

Accepted Answer

$100 plus 3%. This question focuses on testing your knowledge around risk diversification. Putting all your money in one business is like putting all the eggs in the same basket. If the business goes down, you will lose all your money. However, if you spread your money across multiple businesses or investments, the chance of all of them going down is significantly lower. Hence, it is safer to spread your wealth in multiple investments.

Question 4

Suppose you decided to deposit money in the bank for two years. Every year, the bank agrees to add 15% to your account. Will the same amount of money be added to your account both years, or will you get more money the second year than you did the first year??

Accepted Answer

more. The question is to test your understanding of the compound interest. Banks pay you your interest based on the amount of money you have in your bank at the beginning of a year. At the beginning of the first year, you will have $100 in your bank account. So, you will get $100 × 15% = $15 in interest at the end of the year. At the start of the second year, you now have $100 + $15 = $115 in your bank account. Now, the bank has to pay you $115 × 15% = $17.25 in interest for the second year, which is more than the  in the first year.

Question 5

Suppose you deposited  $100 in a savings account today. Every year, the bank adds 10% to the account. In 5 years, how much money would you have in the account if you did not withdraw any money from the account?

Accepted Answer

more than $150. Same as the last question, this is a compound interest question. The amount of money you will have in the bank account after 5 years is equivalent to $100 × (1.10)^5 = $161.05, which is more than $150. The first year interests received will be $100 × 10% = $10. As the interest is added to the opening balance of your bank account next year, the interest thereafter will be larger than $10. Hence, the amount of money you have in your bank account will be more than $150. The compound interest concept and calculation are explained in detail in our compound interest calculator. Make sure you check it out!

Financial Literacy Test

The financial literacy test