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What Is Your Finance IQ?
The Finance IQ Test is designed to assess how much you know about the world of finance. Because the broad topic of finance covers dozens of topics ranging from debit cards to billion dollar corporate accounting, this test focuses on finance questions that an average consumer or investor might need to know in the course of handling his personal finances. It also includes corporate finance issues, investing, income taxes, mortgages, retirement plans, and similar concepts.
1.   A finance company advertises loans with monthly payments and a periodic rate of 3%. Which of the following is closest to the effective annual rate paid for the loan?
     18%
     36%
     42%
     51%
 
2.   A young woman wins $20 million in the state lottery, which entitles her to payments of $1 million per year for 20 years, or to an immediate lump sum payment of $8 million. What does the lottery official mean when he says the two options are equally valuable?
     He is lying, as $8 million is clearly not worth as much as $20 million
     Both options offer an enormous amount of money, more than she would earn otherwise (he is speaking figuratively)
     The net present value of the two income streams is identical
     If she invests the $8 million in government bonds, they will earn her an income of $1 million per year
 
3.   Which of the following investments is considered “risk free” for financial calculation purposes?
     U.S. Treasury Bonds
     High yield Bonds
     Investment grade corporate bonds
     Gold bonds
 
4.   The Jones Shoe Corporation issues common stock, which has a beta value of 1.7. Over the following year, the broad stock market climbs by 10%. What should we expect the price of Jones’ stock to do during that same period?
     Climb by 10%
     Fall by 1.7%
     Fall by 17%
     None of these
 
5.   Jeff wants to invest his retirement savings in the stock market, but he wants to spread his investment out across many companies. Rather than buying individual stocks from one hundred different firms, what tool would give him the same diversity with less hassle?
     Corporate bond fund
     Index mutual fund
     Diversified annuity
     KEOGH fixed income plan
 
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