Financial Literacy Quiz-Answers
Here are the answers to the Quiz
Answer: A bit more than $13
Since inflation is 3% per year, but inflation compounds, then total inflation will be combined for more than 30% over the next ten years. In fact, inflation would be a total of 34%, so the ticket would cost $13.40.
Answer: A 9% gain
While exact numbers differ, depending on how you count investment fees, it is safe to assume a 9% return over any 30 year period in the past. While past performance does not always indicate future results, it is a commonly accepted practice to assume future returns will mirror historic returns.
Since you are contributing $100 each month and the company matches 50% that would be $100 X 0.50 X 12 = $50 X 12 = $600
Answer: About 14 years
In fact, it would take 13 years and 11 months. That is because the minimum payment continues to decrease as the amount you owe gets smaller. Unlike loans where the payment stays the same, credit cards payment is based on how much you owe, which leads to longer term debt that costs lots of money in interest expense.
Answer: The $2,000 tax credit
A tax credit reduces your tax liability by the amount of the credit itself, so $2,000 in this case. A deduction only reduces it based on your marginal tax rate so 25% X $2,000 = $500.
Unlike debt, which is money you actually owe, credit is the amount you have available to borrow – but have not yet actually borrowed it.
Answer: It will not affect your credit score
Pressing the debit key means you will use your PIN and may be able to get cash back as well. Pressing the credit key simply means you may have to sign for the purchase but cannot get cash back. Either way, the money comes out of your account immediately. The difference is really what takes place behind the scenes between the merchant and the credit card company.
Cutting the time to pay off your mortgage in half does not require double the payment! In fact, your monthly payment would be $1,621. Amazing what a few hundred extra dollars can do to your mortgage!
Answer: Renting a car
When you lease, you are renting a car for about 2 or 3 years. You are limited to a specific number of miles and must return the car in good condition. It is the most expensive way to own a new car if you do it every few years, unless you are going to buy a new car every three years anyway… which is another conversation.
Answer: All of the car loan applications will be treated as a single inquiry on your report and will lower your score a small amount
While each inquiry shows up on your credit report, the credit scoring agency understands that people shop around for certain loans, such as cars and mortgages. So they count all of your credit inquiries within a short period of time as a single inquiry.
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