..."Here are the five financial literacy questions of one test that factored prominently in the study:
1. Inflation: Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
a. more
b. the same
c. less
d. don't know
2. Bond prices: If interest rates rise, what will typically happen to bond prices?
a. rise
b. fall
c. stay the same
d. no relationship
3. Compound interest: Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?
1. Routine Health Care: Suppose you could pre-pay for your annual primary routine expected health care expenses with A. an "insurance plan" monthly premium including 20% overhead and billing + taxes and fees or B. Pay out of pocket cash directly to the Doctor or pharmacy with no claims or overhead or administrative fees.
Which is lower cost A. or B.
If you want to be, press one. If you want not to be, press 2
Republicans are red, democrats are blue, neither of them, gives a flip about you.
with compound interest ---- total interest ratio = e to the rt power --- where
- e is natural log
- r is rate of interest (.02)
- t is time (5 years)
over 5 years - compounded interest is 10.5 percent.
(interest on interest on interest....)
Now - if you do it long-hand ---- 1.02x1.02x1.02x1.02x1.02 = 10.4 percent
What's the difference? continuously compounded interest is your friend.
(or your worst enemy)
So - $100 over 5 years becomes $110.50 ---- oh wait ---- that's before Obama gets his share, and the bank charges you their management fee
In real life ---- you end up with $90.
