#1
Which of the following is a key component of a personal budget?
Emergency fund
ExplanationProvides financial cushion for unexpected expenses.
#2
What does the term 'FICO score' represent in the context of personal finance?
Credit score
ExplanationA numerical representation of creditworthiness.
#3
What is the concept of 'compounding' in the context of investing?
Adding interest to the principal amount
ExplanationEarning interest on both the initial investment and accumulated interest.
#4
What is the purpose of a 'sinking fund' in personal finance?
Setting money aside for a specific future expense
ExplanationSystematic saving for a planned future expense.
#5
What does the term 'inflation' mean in the context of personal finance?
Increase in the overall price level of goods and services
ExplanationA general rise in the cost of living.
#6
What does APR stand for in the context of loans and credit cards?
Annual Percentage Rate
ExplanationRepresents the total cost of borrowing, including interest and fees.
#7
What is the primary purpose of a 401(k) retirement account?
Long-term retirement savings
ExplanationDesigned to help individuals save for retirement with potential tax benefits.
#8
Which of the following is considered a 'liquid asset'?
Savings account
ExplanationReadily accessible and can be quickly converted to cash.
#9
What is the purpose of a 'credit report' in personal finance?
To assess creditworthiness
ExplanationProvides a detailed record of an individual's credit history.
#10
What does the term 'net worth' represent in personal finance?
Total assets minus liabilities
ExplanationMeasure of an individual's overall financial position.
#11
In the context of budgeting, what does the term 'discretionary expenses' refer to?
Non-essential, optional expenses
ExplanationSpending on non-essential items or activities.
#12
What is the concept of 'opportunity cost' in personal finance?
The potential benefits given up when one alternative is chosen over another
ExplanationThe value of the next best alternative forgone.
#13
In the context of investments, what does the term 'diversification' refer to?
Spreading investments across different assets to reduce risk
ExplanationMinimizes risk by investing in various assets.
#14
What is the significance of the 'Rule of 72' in financial planning?
Estimating the time it takes for an investment to double at a fixed annual rate of return
ExplanationA quick formula for approximating investment doubling time.
#15
What is the purpose of a '529 plan' in the context of personal finance?
College savings for education expenses
ExplanationTax-advantaged savings plan for education costs.
#16
What is the purpose of an 'emergency fund' in personal finance?
Cover unexpected expenses or financial emergencies
ExplanationFinancial safety net for unforeseen costs.
#17
What is the significance of the 'time value of money' in financial decision-making?
Evaluating the impact of inflation on purchasing power
ExplanationRecognizes that money has different values at different times.