#1
Which of the following is considered a basic principle of budgeting?
Saving and investing regularly
ExplanationBudgeting involves regular saving and investing to achieve financial goals.
#2
What is the purpose of a credit score?
To assess a person's creditworthiness
ExplanationCredit scores evaluate an individual's creditworthiness for borrowing.
#3
What is the purpose of a budget in personal finance?
To track income and expenses, and allocate funds for different purposes
ExplanationBudgets track finances, allocate funds, and manage income and expenses.
#4
What is the difference between a traditional IRA and a Roth IRA?
Traditional IRA contributions are tax-deductible, while Roth IRA contributions are not
ExplanationTraditional IRA contributions are tax-deductible; Roth IRA contributions are not.
#5
What does the term 'net worth' represent in personal finance?
Total assets minus total liabilities
ExplanationNet worth is the difference between total assets and total liabilities.
#6
What does APR stand for in the context of loans and credit cards?
Annual Percentage Rate
ExplanationAPR is the Annual Percentage Rate representing the cost of borrowing on loans and credit cards.
#7
What is the primary function of a stock exchange?
To facilitate the trading of stocks and other securities
ExplanationStock exchanges enable the buying and selling of stocks and securities.
#8
What is the difference between a debit card and a credit card?
Debit cards are linked to a bank account, and transactions are deducted immediately, while credit cards allow borrowing up to a limit
ExplanationDebit cards deduct from a bank account immediately; credit cards allow borrowing with a set limit.
#9
What is the role of the Federal Reserve in the United States?
To manage the country's monetary policy and ensure economic stability
ExplanationThe Federal Reserve oversees monetary policy and promotes economic stability.
#10
What does the term 'ROI' stand for in the context of investments?
Return on Investment
ExplanationROI measures the return earned on an investment relative to its cost.
#11
What is the significance of the Dow Jones Industrial Average (DJIA) in finance?
It measures the performance of the 30 largest publicly traded companies in the U.S.
ExplanationDJIA gauges the performance of major U.S. publicly traded companies.
#12
What is the role of a financial advisor?
To provide personalized financial advice and planning
ExplanationFinancial advisors offer personalized financial guidance and planning.
#13
What is the purpose of diversification in investment?
To reduce risk by spreading investments across different assets
ExplanationDiversification lowers risk by investing in various assets.
#14
In the context of personal finance, what does the term 'liquidity' refer to?
The ability to convert assets into cash quickly without significant loss
ExplanationLiquidity refers to the quick conversion of assets into cash without substantial loss.
#15
What does the term '401(k)' refer to in the context of retirement savings?
A type of employer-sponsored retirement savings plan
ExplanationA 401(k) is a retirement savings plan sponsored by employers.
#16
What is the concept of compounding interest in finance?
Calculating interest on both the initial investment and the accumulated interest
ExplanationCompounding interest involves earning on both the principal and previously earned interest.
#17
What is the primary purpose of insurance in personal finance?
To protect against financial losses from unexpected events or disasters
ExplanationInsurance safeguards against financial losses due to unexpected events.
#18
What is the 'Rule of 72' used for in finance?
Calculating the number of years for an investment to double at a fixed annual rate of return
ExplanationThe Rule of 72 estimates the time for an investment to double at a fixed rate of return.
#19
What is the significance of the P/E ratio (Price-to-Earnings ratio) in stock analysis?
It evaluates a company's profitability relative to its stock price
ExplanationP/E ratio assesses a company's profitability in relation to its stock price.