Basics Beginner: Make Compound Interest Work for You

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
The _______ you invest your money, the _______ compounding can work for you.
Choose wisely. There is only one correct answer.
Earlier / More. Compounding expands your money greatly over time.
2.
The longer an investment is allowed to compound interest, the higher its return will be.
Choose wisely. There is only one correct answer.
True. Although time wont affect the actual rate of return, the return itself will grow, and it will grow much larger than it would from simple interest.
3.
Which of the following are not tax-sheltered investments you can use to compound interest?
Choose wisely. There is only one correct answer.
Municipal bonds. Tax-deferred retirement plans and deferred annuities provide compounding interest, but municipal bonds pay only simple interest. However, you can get the effect of compound interest with a municipal bond fund if you reinvest the dividends.
4.
To find out the rate of interest that you would need to double your investment in a certain number of years, _______.
Choose wisely. There is only one correct answer.
Divide 72 by the number of years. To find out the rate of interest you will need to double your investment in a certain amount of years, divide 72 by the number of years.
5.
A tax-sheltered account always protects your investment interest from taxes, even when you withdraw from it.
Choose wisely. There is only one correct answer.
False. A tax-sheltered account lets interest grow within your account without taxes until it is withdrawn. Once it is withdrawn, it may be taxed.