Basic Financial Concepts Quiz
Challenge yourself with 15 questions on finance basics including compound interest, ROI, liquidity, financial ratios, and more.
#1
What is the basic principle behind compound interest?
Interest is calculated only on the initial principal amount
Interest is calculated on both the initial principal and the accumulated interest
Interest is calculated at a fixed rate annually
Interest is calculated separately for each time period
#2
What does ROI stand for in finance?
Return on Investment
Rate of Inflation
Revenue of Interest
Rate of Income
#3
What is the purpose of diversification in investment?
To concentrate all investment in a single asset
To spread investment across different assets to reduce risk
To maximize returns by investing in high-risk assets
To minimize returns by investing in low-risk assets
#4
Which of the following represents a liability?
Inventory
Accounts Receivable
Accounts Payable
Cash
#5
What is the purpose of a balance sheet?
To record revenues and expenses over a period of time
To provide a snapshot of a company's financial position at a specific point in time
To calculate the return on investment for shareholders
To forecast future cash flows
#6
Which of the following is an example of a liquid asset?
Real Estate
Stocks
Jewelry
Collectibles
#7
What is the formula to calculate Earnings Per Share (EPS)?
Net Income / Total Assets
Net Income / Total Equity
Net Income / Number of Shares Outstanding
Total Revenue / Total Equity
#8
What is the time value of money principle?
Money loses value over time due to inflation
Money has the same value regardless of time
Money gains value over time due to interest
Money loses value over time due to depreciation
#9
What is the formula to calculate the present value of a future sum of money?
Future Value / (1 + Interest Rate)^Number of Periods
Future Value * (1 + Interest Rate)^Number of Periods
Future Value * (1 / (1 + Interest Rate)^Number of Periods)
Future Value / (1 / (1 + Interest Rate)^Number of Periods)
#10
What does the term 'Amortization' mean in finance?
The process of allocating the cost of intangible assets over their useful life
The process of repaying a loan in equal installments over a period of time
The process of converting a variable-rate loan into a fixed-rate loan
The process of increasing the value of an asset over time
#11
What does the Debt-to-Equity ratio measure?
A company's ability to generate profit
A company's ability to pay off its short-term debts
The proportion of debt a company uses relative to its equity
The proportion of equity a company uses relative to its debt
#12
What is the Capital Asset Pricing Model (CAPM) used for?
To calculate the cost of debt for a company
To estimate the expected return on an investment
To calculate the return on equity for a company
To assess the liquidity position of a company
#13
Which of the following is not a measure of liquidity?
Current Ratio
Quick Ratio
Debt-to-Equity Ratio
Cash Ratio
#14
What is the purpose of a 401(k) retirement plan?
To provide health insurance coverage for retirees
To offer tax-deferred retirement savings
To provide guaranteed income for retirees
To offer investment options for short-term gains
#15
What is the purpose of the Securities and Exchange Commission (SEC) in the United States?
To regulate the stock exchanges
To oversee monetary policy
To set interest rates
To regulate accounting standards
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