#1
Which of the following is a key component of financial planning?
Setting financial goals
ExplanationSetting objectives helps guide financial decisions.
#2
What is the purpose of creating a household budget?
To track income and expenses
ExplanationBudgets help monitor and manage financial resources.
#3
Which of the following is a characteristic of a fixed expense?
It remains constant over time
ExplanationFixed expenses don't fluctuate with usage or time.
#4
What does ROI stand for in finance?
Return on Investment
ExplanationIt quantifies the profitability of an investment.
#5
Which of the following is considered a liquid asset?
Savings account
ExplanationLiquid assets can be easily converted to cash.
#6
Which of the following is NOT typically considered an emergency fund?
Stock investments
ExplanationEmergency funds require stability and accessibility.
#7
What is the purpose of asset allocation in investment?
To minimize investment risk
ExplanationDiversification spreads risk across different assets.
#8
What is the primary purpose of life insurance?
To provide financial protection to beneficiaries
ExplanationLife insurance offers security in case of death.
#9
What is the rule of 72 used for in finance?
Estimating investment returns
ExplanationIt approximates how long an investment doubles.
#10
Which of the following is a tax-deductible expense?
Medical expenses exceeding a certain threshold
ExplanationTax-deductible expenses reduce taxable income.
#11
What does the term 'debt-to-income ratio' measure?
Proportion of debt compared to income
ExplanationIt indicates the level of debt relative to income.
#12
What is the purpose of a 401(k) retirement plan?
To help employees save for retirement
ExplanationIt's a tax-advantaged way to save for retirement.
#13
What does the term 'capital gains' refer to in finance?
Profits earned from selling assets at a gain
ExplanationIt's the increase in value of assets upon sale.
#14
What does the term 'liquidity' refer to in finance?
The ease of converting assets into cash
ExplanationLiquidity indicates how quickly assets can be accessed.
#15
What does the term 'compounding interest' refer to?
Interest calculated on the principal plus any previously earned interest
ExplanationIt involves earning interest on both the initial amount and accumulated interest.