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W!se Practice Questions
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Practice questions for the W!se Financial Literacy Test organized by Test Blueprint.
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1
Which statement bet describes a bull market?
A period of high inflation and economic recession.
A period of declining stock prices and pessimism in the market.
A period of stable stock prices and low trading volume.
A period of increasing stock prices and optimism in the market.
2
Why might a person choose to have an individual retirement account (IRA)?
To increase their daily spending.
To save for retirement and potentially receive tax benefits.
To invest in high-risk stocks.
To avoid paying taxes on their gross income.
3
Which of the following is an example of the Rule of 72?
A person invests $1,000 at a rate of 9%. After 8 years the value is $2,000.
The maximum repayment for a loan on a vehicle may not exceed 72 months
In a normal inflation rate, the cost of goods will double every 72 months
A person takes out a loan of $1,000 with an APR of 6% over 72 months.
4
This agency seeks to control inflation by influencing interest rates.
Federal Deposit Insurance Corp. (FDIC).
Security and Exchange Commission (SEC).
Federal Reserve System (Fed).
Financial Industry Regulatory Authority (FINRA).
5
What is a potential benefit of whole life insurance?
It provides coverage for a specific number of years.
It is the cheapest policy available for individuals over the age of 70.
It requires no premium payments.
It offers the opportunity to build cash value over time.
6
Which investment scenario yields the highest return over 5 years?
$1,000 invested at 5% simple interest annually.
$1,000 invested at 5% compound interest annually.
$1,000 invested at 4% simple interest annually.
$1,000 invested at 4% compound interest annually.
7
To support the creation of a realistic budget, a person might
review past expenses and income to determine spending patterns.
set a monthly spending limit but regularly exceed it.
request digital copies of financial statements and bills.
make impulse purchases without tracking expenses.
8
Which of the following best describes what financial planning allows a person to do?
Rely on credit cards and loans for major purchases.
Spend money freely without worrying about future consequences.
Guarantee sufficient funds to achieve short-term financial goals.
Manage income and expenses effectively to achieve financial goals.
9
Which of the following best illustrates the concept of pay yourself first?
Spending all income on daily expenses and saving what is left over.
Borrowing money to cover major purchases.
Setting up a direct deposit instead of receiving a paper check.
Putting a portion of income into savings before paying bills.
10
At what age can a person typically withdraw money from an IRA without penalty?
65 years old.
55 years old.
59 ½ years old.
62 years old.
11
Why might a lender require collateral for a loan?
To provide additional funds to the borrower.
To decrease the interest rate on the loan.
To increase the borrower’s credit limit.
To reduce the risk associated with the borrower defaulting on the loan.
12
What is it called when a person buys a stock and sells it for more than the purchase price?
Stock trading.
Capital investment.
Capital gain.
Stock flipping.
13
Why might a person place a stop payment on a check?
To authorize payment of the check.
To cancel the check and prevent it from being cashed.
To increase the amount of the check.
To speed up the processing of the check.
14
A person can establish credit by
Making timely payments on loans bills to build a positive credit history.
Avoiding all forms of borrowing to maintain a pristine credit record.
Opening multiple bank accounts to build a strong financial history.
Accumulating debt on credit cards from multiple lenders.
15
Which financial concept should you consider to accurately compare the value of two job's benefits?
Gross income.
Disposable income.
Total compensation.
Net worth.
16
Which statement best reflects how a person should approach the creation of an emergency fund?
Invest 6-12 months of income in stocks before making a major purchase.
As soon as possible, deposit 3-6 months of income in a savings account.
Keep 3-12 months of income in cash in your home for ease of access.
Pay off all debts then deposit 3-6 months of income in a CD.
17
If a person makes too many late payments on a credit card, the credit card company may
Raise the interest rate, resulting in higher costs for the cardholder.
Reduce the interest rate to incentivize timely payments.
Request immediate payment of the full balance on the account.
Increase the credit limit to encourage responsible spending.
18
When a person reconciles a bank account, they
Compare the bank statements and account records and make any adjustments
Deposit money into the account.
Withdraw money from the account.
Request overdraft protection to avoid paying bank fees.
19
The Truth in Lending Act is a law _______________________.
Requiring borrowers to disclose non-payment to the credit bureaus.
Prohibiting lenders from discriminating against potential borrowers.
Requires lenders to give borrowers accurate info about loan terms and costs
Requires lenders to disclose how customer personal information is used.
20
The primary purpose of insurance is to ________________________.
Provide financial protection against unforeseen events.
Make a profit for insurance companies.
Increase government revenue.
Promote risky behavior.
21
Why is diversification important in financial planning?
To maximize returns on investments
To eliminate the need for monitoring investments.
To minimize the risk of loss from any single investment.
To guarantee a steady income stream.
22
Which of the following is an example of a revolving credit?
A credit card.
A student loan.
A mortgage.
A car loan.
23
What is the primary purpose of banks?
To safeguard money and provide financial services.
To sell investment products.
To provide storage for valuable assets.
To offer educational programs.
24
A person has 2 credit cards. CC1 - 18% APR and CC2 - 12% APR. Monthly budget is $300. How much should they put on each?
Pay $100 on each and leave the remaining funds in their checking account
Pay $100 on Card 1 and $200 on Card 2
Pay $200 on Card 1 and $100 on Card 2
Pay $150 on each card
25
Which of the following financial objectives is an example of a SMART goal?
I plan to buy a new car next year.
I want to save money.
I hope to become a millionaire someday.
Save $500 each month for the next 12 months to build an emergency fund.
26
What advice might best serve a person on how to manage credit cards while sticking to a budget?
Max out credit card limits to build a strong credit history.
Apply for multiple credit cards to increase spending flexibility.
Set a monthly spending limit on credit cards and track expenses closely.
Use credit cards for all purchases to earn rewards.
27
Which of the following represents a best practice for managing credit cards?
Paying the credit card balance in full each month to avoid interest charges
Carrying a balance on the credit card and paying only the minimum amount
Making only sporadic payments on the credit card balance.
Ignoring credit card statements and not making any payments.
28
A person has a ten-year term life insurance policy. The policy will pay
The death benefit if the insured dies within the ten years.
The death benefit in the insured dies after the ten-year term.
A cash value of $250,000 at the end of ten years.
A cash value equal to the premiums paid over the ten years
29
If a driver hits a deer and has damage to their vehicle, what type of car insurance coverage pays for the repair?
Collision coverage.
Acts of nature coverage.
Liability coverage.
Comprehensive coverage.
30
Insurance is frequently described as a method of sharing the risk because the insured person shares the risk with the
Other policyholders.
Family members.
Federal government.
Insurance company.
31
If the inflation rate is 3%, how will it affect the purchasing power of someone spending $200 on consumer goods?
Their purchasing power will remain the same.
Their purchasing power will decrease.
Their purchasing power will increase.
Their purchasing power will fluctuate unpredictably.
32
How might advertising potentially influence a person’s spending?
Encouraging them to save money.
Promoting responsible budget practices by offering discounts on purchases.
Providing unbiased information about products and services.
Creating a sense of urgency to purchase a product.
33
What is the potential benefit of a Roth IRA?
Higher interest rates compared to traditional retirement accounts.
Tax deductions on contributions.
Guaranteed return on investments.
Tax-free withdrawals in retirement.
34
What factor can potentially contribute to a person securing a favorable interest rate on a loan?
A high income.
A high checking account balance.
A college degree.
A good credit rating.
35
Who in our economy is most impacted by a rising rate of inflation?
Renters in urban areas.
Retirees living on fixed incomes.
Individuals with higher levels of savings.
People with variable-rate mortgages.
36
Which of the following statements best explains an HMO?
A type of retirement savings account.
An organization that offers home mortgage options.
An organization that provides home maintenance services.
Health insurance plan that requires a referral for specialists.
37
Which of the following methods will calculate the highest interest payment?
Interest compounded monthly.
Interest compounded daily.
Interest compounded annually.
Simple interest.
38
What should a person consider before using a credit card for cash advances?
Cash advances offer longer repayment options than regular purchases.
Cash advances incur lower interest rates than regular purchases.
Cash advances do not affect your credit score.
Cash advances incur higher interest rates than regular purchases.
39
A person might adjust their budget to
accommodate changes in income or expenses.
spend more money on impulse purchases.
keep spending within a predetermined limit.
ignore financial statements and bills.
40
What is considered the best way to prevent identity theft?
Sharing personal information on social media.
Providing personal information to unknown callers.
Using the same password for all accounts.
Shredding documents containing sensitive information.
41
What might lead someone to decide not to give a gift card to someone?
Gift cards must be personalized and require more thought.
Provides the recipient with unlimited options and flexibility when buying.
Gift cards may not always be appreciated and may disappoint the recipient.
Gift cards can expire or include fees that reduce their value over time.
42
What may be considered a benefit of online banking?
Protection of sensitive information.
Constant access to a personal banker.
Increased paper usage.
Convenient access to account balances and transactions.
43
A person files an insurance claim for $2,000 in damages and is required to pay $500 of the cost. The $500 is their ____.
Premium.
Dividend.
Face value.
Deductible.
44
Which of the following best describes how long information typically stays on a credit report?
Information stays on a credit report for a maximum of one year.
Positive information stays on a credit report longer than negative info.
Information stays on a credit report indefinitely regardless of the impact.
Most negative information stays on a credit report for up to seven years.
45
You have $10,000 and want to see this money grow. You buy stocks instead of holding the funds in a savings account, why?
Stocks offer lower risk compared to savings accounts.
Stocks have the potential for higher returns over the long term.
Stocks provide immediate access to funds.
Stocks offer guaranteed returns.
46
If a person increases the number of withholdings on their W4 form, their paycheck will
remain the same.
fluctuate unpredictably.
decrease.
increase.
47
Which reflects the mandatory federal payroll deductions that are typically withheld from an employee’s paycheck?
Medicaid, State, and Federal income taxes.
Social Security, Medicare, and Federal income taxes.
Social Security, Medicare, State and Federal income taxes.
Retirement, health insurance, and life insurance benefits.
48
The person with a variable interest rate on a loan can potentially expect their payment to
Decrease over the life of the loan.
Fluctuate as interest rates change.
Vary based on their monthly budget.
Remain constant over the life of the loan.
49
How do mutual funds typically manage risk?
By spreading investments across a diverse portfolio of assets.
By avoiding investments altogether.
By investing only in high-risk assets.
By concentrating investments in a single asset class.
50
What is one potential benefit of obtaining a college degree when it comes to job opportunities?
It may increase earning potential.
It may increase the chances for entrepreneurship.
It may limit career opportunities to specific fields.
It may hinder networking and social opportunities.
51
Which of the following is a good example of a making a financial “trade-off”?
trading your U.S. dollars for Euros.
skipping a few classes at school to go shopping at the mall.
skipping a few days of work to look for a new job.
skipping a few dinners out to save for a weekend trip.
52
This term refers to the person who receives financial assets outlined in a will.
Executor.
Beneficiary.
Trustee.
Spouse.
53
You take a valuable item to a pawn shop and receive a cash loan in return. In this case, your item is considered...
Collateral
Deposit
Interest
Principal payment
54
You take out a loan of $1000 over a 6-mo. period. The total of their mo. payments over this period is $1070 because
The $70 will be added to their emergency fund.
They added a gratuity of $70 for the lender’s service.
In addition to the principal, they incurred $70 in taxes on the loan.
In addition to the principal, they incurred $70 in interest on the loan.
55
Why might a person opt to purchase a term life insurance policy?
To guarantee coverage for the entire lifetime of the insured.
To accumulate cash value over time.
To provide coverage for a specific period at a lower cost.
To provide coverage for medical expenses.
56
For which purpose might a person prefer to get a loan?
To donate to charity.
To increase savings.
To decrease personal debt.
To purchase a home.
57
Which item is not a factor in determining a person’s credit score?
Payment history.
Credit utilization.
Length of credit history.
Income.
58
A person might choose to become an entrepreneur instead of working for a company so they can _____________________.
avoid taking risks.
receive a fixed salary every month.
have more structured work hours.
create new products and ideas.
59
What is a payday loan?
A long-term installment loan with payments made each payday.
A short term, high interest loan due on the borrower’s next payday.
An interest free loan provided by a friend or family member.
A type of loan offered by banks with low interest rates.
60
Which of the following is considered a variable expense?
Car loan payment.
Grocery.
Homeowner’s insurance premium.
Mortgage payment.
61
Your take-home pay, or net income, is _________________.
the total amount you earn.
the amount you receive after deductions
the amount you receive after benefits
the amount of cash needed to fill one basketball net.
62
Replacement coverage is insurance that
Reimburses the policyholder for the full purchase price of an item.
Covers the cost of repairing damaged property.
Covers the cost of replacing damaged or stolen property with same value.
Provides coverage only for specific types of natural disasters.
63
Which agency oversees the stock market?
Securities and Exchange Commission (SEC)
Internal Revenue Service (IRS)
Federal Trade Commission (FTC)
Federal Reserve System (FED)
64
Which element is necessary for establishing a financial goal?
Get input from a financial specialist.
Set a time limit in which the goal will be achieved.
Establish an emergency fund before focusing on financial goals.
Focus on goals that quickly increase your net worth.
65
What is the potential advantage of using a direct deposit for receiving a paycheck?
It increases the amount of deposit.
It provides an opportunity to earn interest on the paycheck.
Allows for quicker access to the funds compared to receiving a paper check.
It requires a physical trip to the bank to deposit the check.
66
What is the best reason for a person to use their emergency fund?
Home renovations.
Regular monthly bills.
Unforeseen medical expenses.
To pay for a luxury vacation.
67
After graduating, what typically happens to a person who received a loan to pay for the cost of an undergraduate degree?
The loan is automatically forgiven.
The person automatically receives additional loan funds for graduate school
The person must begin making loan payments.
The person’s credit score decreases.
68
Which statement best describes a credit union?
A for-profit organization that offers financial services to the public.
A non-profit organization that offers financial services to its members.
A corporation that extends credit to its members and the public.
A government agency that regulates banking practices.
69
What is the primary difference between a loan and grant to pay for college?
Grants are based on financial need w/o repayment & loans require repayment
Loans provide funs upfront, while grants require work-study arrangements.
Loans are based on academic merit and grands are based on extracurriculars
Grants require repayment with interest, while loans do not.
70
Which of the following statements best describes the benefit of contributing to a 401(k)?
Contributions are matched by your employer, up to a certain percentage.
Contributing to a 401(k) increases your monthly expenses.
401(k) contributions are taxed immediately, reducing your take-home pay.
401(k) contributions have no impact on taxes until retirement age.
71
Which of the following best describes the difference between a debit and credit card?
Debit cards require a credit check, while credit cards do not.
Your own money is spent with debit cards and you borrow with credit cards.
Credit cards are linked to your checking account, debit cards are not.
Debit cards have higher interest rates compared to credit cards.
72
To cost of insurance is called the _________________.
Face value.
Premium.
Deductible.
Dividend.
73
What is APR?
The total amount of money borrowed.
The cost of borrowing money annually, including interest and fees.
The number of payments required to pay off a loan.
The amount of money earned on a deposit.
74
The __________ provides insurance on bank deposits up to a value of _________.
Securities and Exchange Commission; $250,000.
Internal Revenue Service; $100,000.
Federal Reserve; $100,000.
Federal Deposit Insurance Corporation; $250,000.
75
A restricted endorsement typically includes __________________.
The date and the person’s address.
A person’s signature and “For Deposit Only.”
The date and “Pay to the Order Of.”
A person’s signature and account number.
76
Which statement best defines a mutual fund?
A loan provided by a bank for purchasing a home.
A portfolio that pools money to invest in stocks, bonds, and other assets.
A type of individual retirement account.
A government-issued bond.
77
How does renters' insurance differ from homeowners' insurance?
Homeowners is only for properties occupied by the owner of the property
Renters insurance is required by law and homeowners' insurance is optional.
Renters insurance is typically more expensive than homeowners' insurance.
Renters covers personal belongings & homeowners' insurance covers structure
78
Which equation illustrates a balanced budget?
Total expenses + savings = total income.
Net income = Total expenses.
Total income = total expenses – savings.
Gross income = variable expenses + fixed expenses.
79
A person writes a check for $250 with no overdraft protection and a current account balance of $175. Their bank will...
pay the check and ask the customer to make an additional deposit.
return the check because of insufficient funds and charge a fee.
set up a loan for the difference.
close the person’s bank account.
80
A person makes $500 a week and receives a paycheck of $447. The $500 and $447 represent the person’s ____ and ____.
Gross pay; net pay.
Hourly rate; wages.
Bonus; take home pay.
Net Pay; commission.
81
Which of the following statements illustrates the concept of the time value of money?
The earlier you start saving for retirement, the more your money will grow.
Borrowing money at a high interest rate is better than a low interest rate.
Investing in stocks always guarantees a higher return compared to bonds
Keeping your money under your mattress is the safest way to keep its value.
82
What might cause the price of a stock to change on a particular day?
CEO of the company declares an increase or decrease in the price of stock.
The company announces the release of a new product.
The corporation’s finance committee changes the stock price quarterly.
Prices are fixed when the stock is issued for sale to the public.
83
Which of the following best describes the impact on a person who co-signed a loan that was not repaid by the borrower?
The co-signer is not affected.
Co-signer's credit score may lower & they'd be required to repay the loan.
The co-signer’s credit score will increase.
The lender will waive the loan repayment for the co-signer.
84
What is the agency responsible for collecting taxes at the federal level?
Federal Reserve System (FED)
Internal Revenue Service (IRS)
Consumer Financial Protection Bureau (CFPB)
Security and Exchange Commission (SEC)
85
If an investment of $1,000 grows at a rate of 6% per year, how long will it take for a person to double this investment?
18 years
6 years
12 years
24 years
86
A company issues bonds to the public to ______________.
Increase the number of shareholders
Decrease its share price.
Borrow money.
Lend them money.
87
What is a term for money a person contributes towards the cost of the home when securing a mortgage?
Interest.
Escrow funds.
Mortgage payment.
Downpayment.
88
Which of the following is a disadvantage of home ownership?
Accumulating equity over time.
Ability to customize and personalize living space.
Potential increase in property value.
Responsibility for maintaining and repairing the home.
89
What might be a factor influencing the way a person chooses a bank?
The number of employees working at the bank.
The bank’s social media presence.
The bank’s location and accessibility.
The gift or promotion for opening an account.
90
An installment loan is a loan _______________________.
That must be repaid in full within a short period of time.
Used to pay for upgrades to a person’s primary residence.
Where a person makes a minimum payment monthly to keep the loan current.
Where the monthly payment is the same over the repayment period.
91
Why might a person decide to purchase disability insurance?
To pay for the cost of unexpected medical expenses.
To cover the cost of vacations if they are on sick leave.
To finance renovations for an older home.
To protect against the loss of income due to illness or injury.
92
Which of the following best describes the implications of taking out a loan for the maximum term allowed?
It minimizes the total amount of interest paid over the life of the loan.
It accelerates the repayment process, allowing room for a new loan.
It extends the repayment period resulting in higher overall interest costs.
It increases the monthly payments, making it easier to manage.
93
What is the relationship between the insurance premium and deductible?
As the premium decreases, the deductible increases.
As the premium decreases, the deductible decreases.
As the premium increases, the deductible increases.
They are unrelated factors.
94
A company issues stock to _________________.
Decrease their revenue.
Increase their debts.
Decrease their market value.
Raise capital for investment and expansion.
95
What might a person still be responsible for when they file bankruptcy?
Taxes.
Mortgage payments.
All debts are completely forgiven.
Revolving credit balances.
96
Which is the safest option for receiving payment, instead of cash, if selling an item to an unknown person?
Personal check.
Crypto currency.
Money order.
Loan agreement.
97
Which example below reflects who typically issues bonds and for what purpose?
Corporations issue bonds to reduce their debt.
Individuals issue bonds to raise personal investment funds.
The government issues bonds to fund public projects and infrastructure.
Banks issue bonds to increase their reserves.
98
By increasing the interest rate, the Federal Reserve
Discourages spending or borrowing to influence the rate of inflation.
Strives to increase the rate of employment.
Encourages spending or borrowing to influence the rate of inflation.
Promotes international trade.
99
This tax is imposed to discourage the consumption of certain goods and services.
Estate tax.
Local tax.
Consumer tax.
Excise tax.
100
Electronic funds transfer refers to
A process of physically depositing cash into a bank account.
The process of withdrawing cash from an ATM.
A service provided by banks to exchange physical checks.
A method of transferring funds between bank accounts using a mobile device.
101
What might a person do if they consistently spend less than budgeted?
Allocate the excess funds towards savings or debt repayment.
Increase their spending on non-essential goods and services.
Add the excess funds to their entertainment budget.
Ignore their budget.
102
If a person earns $50,000 a year, has total assets of $250,000 and liabilities of $140,000, their net worth is
$160,000
$250,000
$110,000
$50,000
103
A bond is an example of a _____________.
Currency
Certificate of Deposit
Line of credit
Loan
104
Which of the following is not a cost associated with renting?
Application fee.
Security deposit.
Monthly rent payment.
Closing costs.
105
Which of the following choices lists assets from MOST liquid to LEAST liquid?
Bonds, real estate, certificate of deposit (CD).
Savings accounts, certificates of deposit (CD), real estate.
Stocks, savings accounts, money market accounts.
Money market accounts, bonds, checking accounts.
