Compound interest quiz

All 10 questions and answers

Want to check an answer or run the quiz out loud? Every question is here, with the answer hidden until you open it.

1. $1,000 earns 10% a year compound interest. What is it worth after 2 years?
   • $1,210
   • $1,020
   • $1,200
   • $1,100
   Show answer

   $1,210. Year 1: $1,100. Year 2: $1,100 × 1.1 = $1,210.

2. $1,000 at 10% simple interest for 2 years is worth…
   • $1,210
   • $2,000
   • $1,100
   • $1,200
   Show answer

   $1,200. Simple interest is paid only on the original amount.

3. Using the Rule of 72, how long does money take to double at 8% a year?
   • About 12 years
   • About 72 years
   • About 9 years
   • About 6 years
   Show answer

   About 9 years. 72 ÷ 8 = 9.

4. At 6% a year, roughly how long does money take to double?
   • About 12 years
   • About 3 years
   • About 20 years
   • About 6 years
   Show answer

   About 12 years. 72 ÷ 6 = 12.

5. Compound interest means earning interest on…
   • Only fees
   • Only your original money
   • Only new deposits
   • Your original money and on past interest
   Show answer

   Your original money and on past interest. Interest earns interest.

6. Interest compounded monthly, compared with yearly at the same rate, earns…
   • Slightly less
   • Nothing
   • Exactly the same
   • Slightly more
   Show answer

   Slightly more. More frequent compounding adds interest sooner.

7. $100 earning 5% a year is worth how much after one year?
   • $150
   • $105
   • $110
   • $100.50
   Show answer

   $105. 5% of $100 is $5.

8. What does inflation do to the value of cash over time?
   • Has no effect
   • Increases what it can buy
   • Reduces what it can buy
   • Doubles it
   Show answer

   Reduces what it can buy. That's why money held as cash loses buying power.

9. Why does starting to save early make a big difference?
   • Prices fall over time
   • Banks pay young people more
   • Compounding has more years to work
   • Taxes are lower
   Show answer

   Compounding has more years to work. Time is the biggest factor in compounding.

10. Which is better for a saver: a higher or lower interest rate?
    • Lower
    • Higher
    • Zero
    • It doesn't matter
    Show answer

    Higher. Borrowers want lower rates. Savers want higher ones.