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Compound interest quiz

20 free compound interest questions with answers worked out: the Rule of 72, starting at 25 vs 35, what a 1% fee costs over 30 years, the latte factor, dividends that reinvest, and the money math behind lottery tickets and losses.

Tap an answer to check it, or open "Show the answer" under each question. Every question comes from a free 3-minute lesson, linked under its answer. Educational content, not financial advice.

Question 1 of 20

$5,000 invested at age 25 vs $5,000 invested at age 35 (both untouched until 65, 8% return). How much MORE does the early investor have?

  1. Only $20,000 more
  2. About $58,000 more
  3. About $108,000 more
  4. About $5,000 more
Show the answer

Answer: B · About $58,000 more

Age 25 = $108,623. Age 35 = $50,313. Difference: ~$58,000 from JUST ONE deposit, 10 years earlier. That's the magic of time + compounding.

📚 Learn it: The Magic Penny Trick

Question 2 of 20

Why does a 1% savings account barely grow your money?

  1. At 1%, it takes 7 years to double
  2. 72 ÷ 1 = 72 years just to double it
  3. Banks pay interest once a decade
  4. The 1% only applies to your first $1,000
Show the answer

Answer: B · 72 ÷ 1 = 72 years just to double it

At 1%, doubling takes ~72 years — slower than inflation shrinks it, so you actually lose ground.

📚 Learn it: The Rule of 72

Question 3 of 20

Newborn gets $1,000 from grandma. Invested at 8% until age 65. Final amount?

  1. About $65,000
  2. About $10,000
  3. About $500,000
  4. About $150,000
Show the answer

Answer: D · About $150,000

$1,000 at 8% for 65 years ≈ $149,000. One single deposit. Time does the work. This is why custodial accounts for newborns are a SUPERPOWER.

📚 Learn it: How $1,000 at Birth Becomes $150,000

Question 4 of 20

You skip a $5 daily coffee for 30 years and invest at 8% return. Final amount?

  1. About $223,000
  2. About $54,750
  3. About $95,000
  4. About $1 million
Show the answer

Answer: A · About $223,000

$5 × 365 days × 30 years = $54,750 (NOT invested). But invested at 8% with compounding = $223,000+. That's the latte factor.

📚 Learn it: Your $5 Coffee is Actually $220,000

Question 5 of 20

What's a 'good' fund expense ratio?

  1. About 1-2%
  2. Under 0.10%
  3. Close to 1%
  4. Around 0.50%
Show the answer

Answer: B · Under 0.10%

Modern index funds charge 0.03-0.10%. Anything over 0.50% is robbing you. Over 1% should be ILLEGAL but isn't. Always check before buying any fund.

📚 Learn it: How a 1% Fee Steals $135,000 From You

Question 6 of 20

If inflation runs 3% per year, how long until $100 only buys $50 of stuff?

  1. About 24 years
  2. About 36 years
  3. About 12 years
  4. About 17 years
Show the answer

Answer: A · About 24 years

Rule of 72: 72 ÷ 3% = 24 years to lose HALF your purchasing power. This is why investing matters — you need to grow faster than inflation.

📚 Learn it: Why Did Your Burrito Get So Expensive?

Question 7 of 20

Why do expense ratios matter so much over time?

  1. They compound — small differences become huge over decades
  2. They only apply in retirement accounts, where you can't avoid them
  3. Only accounts over $100,000 pay them, and those add up fast
  4. They don't — a 1% fee only costs you 1% of your money in total
Show the answer

Answer: A · They compound — small differences become huge over decades

Compounding works against you with fees. 1% feels small for one year — but 30 years of 1% can eat about a quarter of your portfolio.

📚 Learn it: Expense Ratios — The Silent Killer

Question 8 of 20

$10,000 invested in S&P 500 for 20 years at average 10% return =

  1. $30,000
  2. $200,000
  3. $67,000
  4. $15,000
Show the answer

Answer: C · $67,000

$10k at 10% for 20 years = $67,275 — and that ~10% already includes reinvested dividends. Just by buying, holding, and not panicking. That's the real magic.

📚 Learn it: The S&P 500 Has Never Lost Money Over 20 Years

Question 9 of 20

What's the actual lesson of the $220k coffee example?

  1. Ignore small buys, focus on big ones
  2. Cut every treat and invest the rest
  3. Quit coffee to retire a millionaire
  4. Spend on purpose, knowing the trade-off
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Answer: D · Spend on purpose, knowing the trade-off

The point isn't deprivation — it's making the choice consciously instead of by accident.

📚 Learn it: The Hidden Price Tag on Everything

Question 10 of 20

You own 200 shares paying $3/year each. Annual dividend income?

  1. $1,200
  2. $600
  3. $60
  4. $200
Show the answer

Answer: B · $600

200 shares × $3 = $600 per year, just for holding the stock. Reinvest it and it compounds.

📚 Learn it: Dividends — Getting Paid to Hold

Learn it in the app: Featured Lessons lessons, free →

3-minute lessons with a quiz, XP and streaks in the free app. No sign-up needed.

Question 11 of 20

What does a DRIP do?

  1. Auto-sells some shares to pay you income
  2. Auto-deposits dividends into your bank
  3. Splits dividends into monthly payments
  4. Auto-reinvests dividends into more shares
Show the answer

Answer: D · Auto-reinvests dividends into more shares

A Dividend Reinvestment Plan automatically buys more shares with your dividends — compounding without you lifting a finger.

📚 Learn it: Dividends — Getting Paid to Hold

Question 12 of 20

$300/year in lottery tickets for 40 years equals:

  1. $3,000 wasted (typical)
  2. $77,000 earned (typical)
  3. $1 million won (decent odds)
  4. $12,000 wasted (typical)
Show the answer

Answer: D · $12,000 wasted (typical)

$12,000 spent. ~$0 won. Same $12k invested = $77,000+. The lottery is the WORST investment vehicle ever created.

📚 Learn it: The Brutal Math of Lottery Tickets

Question 13 of 20

Person A makes $200k, spends $200k. Person B makes $60k, spends $45k. Who builds wealth faster?

  1. Depends on credit score
  2. B — has a positive gap
  3. Neither
  4. A — more income wins
Show the answer

Answer: B · B — has a positive gap

A's gap = $0. B saves $15k/yr. Over 30 years at 8% = ~$1.7M. Gap wins every time.

📚 Learn it: The Only Equation That Actually Matters

Question 14 of 20

Average annual return of S&P 500 historically?

  1. ~18%
  2. ~25%
  3. ~10%
  4. ~3.5%
Show the answer

Answer: C · ~10%

Long-term, the S&P 500 has averaged about 10% per year (before inflation). Some years much higher, some negative, but the trend wins.

📚 Learn it: The S&P 500 — America's Default Bet

Question 15 of 20

To recover from a 50% loss, you need a gain of...

  1. 75%
  2. 150%
  3. 100%
  4. 50%
Show the answer

Answer: C · 100%

Halving your money means you must double what's left (+100%) just to break even.

📚 Learn it: Stop-Losses: Your Eject Button

Question 16 of 20

What is the BIGGEST hidden cost of an early withdrawal?

  1. The 10% penalty, the largest bite of the withdrawal
  2. The hit your credit score takes when you tap your 401(k)
  3. The fees your plan charges to release the money
  4. The decades of compound growth that money will never earn
Show the answer

Answer: D · The decades of compound growth that money will never earn

Penalty and tax sting, but the lost future growth is what really makes it expensive.

📚 Learn it: Don't Raid Your 401(k): The Early-Withdrawal Trap

Question 17 of 20

What's Buffett's biggest investing principle?

  1. Buy great businesses and hold them for the long term
  2. Time the market — sell before downturns, buy at bottoms
  3. Buy hot IPOs early, before the big funds catch on
  4. Trade often to lock in gains before the market turns
Show the answer

Answer: A · Buy great businesses and hold them for the long term

Buffett famously said his favorite holding period is 'forever.' He buys quality companies and lets compounding do the work.

📚 Learn it: Warren Buffett — The Oracle of Omaha

Question 18 of 20

Best gift for a newborn?

  1. $100 in a single hot tech stock
  2. $100 of diapers and baby essentials
  3. $100 in a big-bank savings account
  4. $100 in an S&P 500 index fund
Show the answer

Answer: D · $100 in an S&P 500 index fund

$100 invested at birth, untouched until 65 at 8% return ≈ $15,000. Way better gift than another stuffed animal. Long-term thinking wins.

📚 Learn it: How $1,000 at Birth Becomes $150,000

Question 19 of 20

What's the lesson of the latte factor?

  1. Buy stock in the coffee chain you visit instead of drinks
  2. Cut out every little treat, no matter how much you enjoy it
  3. Small habits compound into massive wealth or massive losses
  4. Small daily costs don't matter — only big purchases do
Show the answer

Answer: C · Small habits compound into massive wealth or massive losses

Not about denying yourself coffee. It's about being AWARE: every habit has a long-term cost. Pick the ones worth it. Kill the ones that aren't.

📚 Learn it: Your $5 Coffee is Actually $220,000

Question 20 of 20US

$500/month for 30 years, $135,000 less than no-fee scenario. What's the cause?

  1. One big market crash
  2. Just 1% in annual fees
  3. Picking a few bad stocks
  4. Just 1% in inflation
Show the answer

Answer: B · Just 1% in annual fees

ONE PERCENT FEES = about $135,000 over 30 years. It seems harmless. It's not. Switch your 401(k)/IRA to low-cost index funds immediately. This single change is life-changing.

📚 Learn it: How a 1% Fee Steals $135,000 From You

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