Cumulative level test: Compounding, Risk, and Reading Financial Evidence

Check understanding, separately from reading

12 questions · 80% to pass · no timer. This longer test revisits both units in the level. These authored questions assess recognition and application of the taught distinctions, not professional qualification. You may review the lessons and retry. Repeat attempts reuse the question bank; a remembered answer is not proof of transfer to a new situation.

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Question 1

A product is advertised as growing '8% a year' in a brochure that names no compounding convention, no fee, no tax treatment, and no inflation assumption. A review is commissioned before any money moves. Which set of questions must be answered before the claim can even be tested?The compounding convention, the annual fee, the tax treatment of the growth, and whether 8% is a nominal or a real rateWhether the provider's name sounds like an established index and how long the firm has existed

Question 2

An offer promises $50,000 in fifteen years and asks for $26,000 today. Discounted at an assumed 5% effective annual rate the promise is worth $24,050.85; at 4% it is worth $27,763.23. What should the reviewer report?That the offer should be accepted because $50,000 is nearly double the $26,000 requestedThat the offer is acceptable only if a rate below about 5% is defensible, and that the rate must be argued rather than chosen

Question 3

Two assets each have a 5.00% expected annual return. One pays 5% in every state; the other has a 25% chance of −25%, a 50% chance of +5%, and a 25% chance of +35%, with a standard deviation of 21.2132%. Money is needed for a payment in six months. What governs the decision?The dispersion and the payment date, because the average is not a state that can be spentThe expected return alone, since the two means are identical and the risk question therefore cancels

Question 4

A fund's fact sheet quotes a 0.20% expense ratio, its prospectus fee table shows 0.95% for the share class the investor holds, and a platform document shows a 0.35% account fee. Which figure belongs in the comparison, and on what basis?The lowest figure, because it represents the fund's own cost of operationThe prospectus fee table figure for the class actually held, with the separate account fee noted as an additional cost

Question 5

A $100,000 portfolio earning a hypothetical 4% gross for twenty years reaches $219,112.31 with no fee and $180,611.12 with a 1.00% ongoing fee. The fee amounts charged over the period sum to less than the $38,501.19 difference. How are both numbers explained?The fee removes assets that would themselves have earned a return, so the wealth given up exceeds the amounts chargedThe state of the disclosure is mistaken, because a fee must equal the reduction in the balance

Question 6

A saver assumes a 22% marginal tax rate at contribution and at withdrawal when choosing between a deductible account and a tax-free account, and both options end at $22,399.62. What does that result require the saver to verify?Nothing further, because a constant rate is a reasonable assumption on the grounds that tax law is stableWhether the withdrawal rate will match the contribution rate, given that rates, thresholds, and account rules are set by law and change

Question 7

A company reports $30,000 of net income, receivables up $50,000, depreciation of $8,000, and no capital spending; its board proposes to accelerate debt repayment from operating cash. What does the reconciliation imply for that proposal?Operating cash flow is negative $12,000, so faster repayment would require reserves or new financingProfit of $30,000 provides the cash, so the repayment can proceed as planned

Question 8

A borrower has three debts and can commit $500 a month. Highest-rate-first finishes in 34 payments with $2,894.50 of interest, smallest-balance-first in 35 payments with $3,127.85, and paying only the $320 of minimums takes 66 payments and costs $6,875.16. A coach advertises 'we will choose the order that saves you the most'. What is the missing analysis?That ordering is the only variable that matters, so the $180 is irrelevantThat the extra $180 above the minimums accounts for $3,980.66 and 32 payments, dwarfing the $233.36 ordering difference

Question 9

A saver holds a deposit paying a nominal 2% while an assumed inflation rate is 3%, interest is taxed at a hypothetical 20% as it accrues, and no other fees apply. What must any statement about the result include?The inflation assumption, the tax rate applied to a nominal gain, and the saver's jurisdictionOnly the 2% coupon rate, because the deposit's value cannot fall

Question 10

A debt-relief firm advertises that 'all your debt can be gone in 24 months for a small up-front enrolment fee, guaranteed'. The client's own figures need 34 payments at $500 a month. What is the appropriate response?Proceed, because the up-front fee schedule has been disclosed in writingRequest the repayment arithmetic and its assumptions, and treat the guarantee and up-front fee as warning signs

Question 11

A household holds an employer's shares, a fund whose largest positions are companies in that same industry, and one month's expenses in cash. The employer announces a restructuring. Which exposures are not separately diversified, and why does the cash matter?The shares, the fund, and the wage income share one industry factor, while the near-dated cash meets a requirement the holdings cannotAdding a third and fourth fund of the same kind would complete the diversification

Question 12

An advertisement projects a $301,354.51 balance from $300 contributed monthly for thirty years. A reader asks whether the projection is honest. What is the defensible assessment?The projection is dishonest because no long-term return can be projected at allThe arithmetic is correct as a conditional calculation and incomplete as a claim, because the rate convention, fees, taxes, and inflation are unstated

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