#1
Which of the following is considered a liquid asset?
Stocks
ExplanationStocks are easily convertible to cash without significant loss in value.
#2
What is a credit score?
A numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual.
ExplanationA measure of an individual's creditworthiness based on credit history, used by lenders to assess the risk of extending credit.
#3
Which of the following best defines 'inflation'?
The general increase in prices and fall in the purchasing value of money.
ExplanationA rise in the general price level of goods and services, eroding purchasing power over time.
#4
What is an emergency fund?
Money set aside for unexpected expenses
ExplanationFunds reserved to cover unforeseen expenses or financial emergencies.
#5
What is a '401(k)' plan?
A tax-deferred retirement savings plan offered by an employer
ExplanationA retirement savings plan offered by employers, allowing employees to contribute a portion of their salary before taxes.
#6
What is the 50/30/20 budget rule?
50% needs, 30% wants, 20% savings
ExplanationA budgeting guideline suggesting the allocation of income into different categories for financial balance.
#7
Which of the following accounts typically offers the highest interest rate?
Certificate of Deposit (CD)
ExplanationCDs generally offer higher interest rates than savings or checking accounts due to fixed terms.
#8
What is the primary benefit of diversification in investment?
Risk reduction
ExplanationDiversification spreads risk across different assets, reducing the impact of poor performance in any one investment.
#9
What is the difference between a Roth IRA and a Traditional IRA?
Roth IRA allows for tax-free withdrawals in retirement, whereas Traditional IRA withdrawals are taxed.
ExplanationTax treatment differs, with Roth IRAs allowing tax-free withdrawals, while Traditional IRAs are taxed upon withdrawal.
#10
Which of the following is not a characteristic of a bond?
Equity ownership in a company
ExplanationBonds represent debt, not ownership, in a company.
#11
What does the term 'compounding' refer to in the context of investing?
The increase in value of an investment due to earned interest or dividends being reinvested to generate additional earnings
ExplanationEarning returns not only on the initial investment but also on the accumulated interest or dividends over time.
#12
What does it mean to 'short' a stock?
To borrow shares of a stock and sell them, hoping to buy them back at a lower price for a profit.
ExplanationProfiting from a decline in a stock's price by borrowing and selling shares, then buying them back at a lower price to return to the lender.
#13
What is the primary advantage of a High-Deductible Health Plan (HDHP) with a Health Savings Account (HSA)?
It allows for pre-tax savings to be used for qualified medical expenses
ExplanationTax advantages and flexibility in covering medical costs, with contributions made before taxes and withdrawals for qualified medical expenses tax-free.
#14
What does it mean when a bond is called?
The issuer repays the bond before its maturity date, usually at a premium.
ExplanationThe issuer redeeming the bond before its maturity date, typically paying a premium to bondholders.