#1
Which of the following is considered a liability in personal finance?
Mortgage
ExplanationA mortgage is a financial liability as it represents a debt obligation for a property.
#2
What is the term used to describe the rate at which the general level of prices for goods and services is rising?
Inflation
ExplanationInflation refers to the increase in the general price level of goods and services over time.
#3
What is the term used to describe the practice of spreading investments across different assets to reduce risk?
Asset diversification
ExplanationAsset diversification involves distributing investments across various asset classes to mitigate risk and optimize returns.
#4
What is the term for the process of comparing a company's financial performance with that of its competitors?
Financial benchmarking
ExplanationFinancial benchmarking involves comparing a company's financial performance against industry peers to assess relative strengths and weaknesses.
#5
What is the purpose of a 529 plan in personal finance?
To fund education expenses
ExplanationA 529 plan is specifically designed to save and invest for education-related expenses such as tuition and other qualified costs.
#6
What is the purpose of a W-4 form?
To calculate federal income tax withholding
ExplanationThe W-4 form helps determine the amount of federal income tax to be withheld from an employee's paycheck.
#7
What is the rule of 72 used for in personal finance?
Estimating investment growth
ExplanationThe rule of 72 is a formula for estimating the number of years needed for an investment to double at a fixed annual rate.
#8
Which of the following is NOT a factor affecting credit scores?
Annual income
ExplanationAnnual income is not directly considered in credit score calculations; it's not a factor affecting credit scores.
#9
Which of the following is a characteristic of a 401(k) retirement plan?
Contributions are tax-deductible
ExplanationContributions to a 401(k) retirement plan are often tax-deductible, providing a tax benefit to participants.
#10
What does the term 'ROI' stand for in finance?
Return on Investment
ExplanationROI represents the return on investment, indicating the profitability of an investment relative to its cost.
#11
What is the primary purpose of asset allocation in investment?
To minimize investment risk
ExplanationAsset allocation aims to spread investments across various assets to reduce risk and optimize returns.
#12
What does the term 'liquidity' refer to in personal finance?
Ability to convert assets into cash quickly without significant loss
ExplanationLiquidity in personal finance denotes the ease of converting assets into cash without substantial loss in value.
#13
What does the term 'opportunity cost' refer to in personal finance?
The value of the next best alternative forgone when a decision is made
ExplanationOpportunity cost represents the potential value lost when choosing one option over another in decision-making.
#14
What does the term 'asset turnover ratio' measure in financial analysis?
The efficiency of a company's use of assets to generate revenue
ExplanationAsset turnover ratio gauges how effectively a company utilizes its assets to generate sales and revenue.
#15
What does the term 'cost of capital' represent in finance?
The rate of return required to make a capital budgeting project worthwhile
ExplanationCost of capital is the rate of return needed to justify and undertake a capital budgeting project, reflecting the cost of obtaining funds.