#1
Which of the following is a common short-term financial goal?
Building an emergency fund
ExplanationTo prepare for unexpected expenses
#2
What is the purpose of creating a budget in personal financial planning?
To limit spending
ExplanationTo control expenses and prioritize financial goals
#3
What does the term 'net worth' represent in personal finance?
Total assets minus liabilities
ExplanationOverall financial position, assets minus debts
#4
Which of the following is an advantage of a 401(k) retirement account?
Employer matching contributions
ExplanationEmployer matches employee contributions, increasing retirement savings
#5
What is the purpose of diversification in investment portfolios?
To reduce overall risk
ExplanationSpreading investments across different assets to minimize losses
#6
Which of the following is a characteristic of a Roth IRA?
Withdrawals in retirement are tax-free
ExplanationEarnings grow tax-free, withdrawals in retirement are tax-free
#7
What is the primary purpose of asset allocation in investment?
To diversify risk across different asset classes
ExplanationTo spread investment risk and optimize returns
#8
What is the purpose of an emergency fund in personal finance?
To cover unexpected expenses
ExplanationTo provide financial security in unforeseen circumstances
#9
What is the 'Rule of 72' used for in financial planning?
To estimate the number of years to double an investment
ExplanationQuickly estimate investment growth based on compound interest
#10
What is the primary purpose of a will in personal finance?
To transfer assets upon death
ExplanationEnsure distribution of assets according to wishes after death
#11
What is the formula to calculate compound interest?
P = A(1 + r/n)^nt
ExplanationP: Principal amount, A: Final amount, r: Annual interest rate, n: Number of times interest applied per time period, t: Number of time periods
#12
Which of the following factors typically affects credit scores?
Length of credit history
ExplanationLonger credit history indicates creditworthiness
#13
What does the term '529 plan' refer to in personal finance?
College savings plan
ExplanationTax-advantaged investment account for education expenses
#14
Which of the following statements about credit utilization ratio is true?
A lower ratio is better for credit scores
ExplanationLower ratio indicates responsible credit usage, positively affecting credit score
#15
What is the primary purpose of asset allocation in investment portfolios?
To minimize risk
ExplanationBalancing investments across asset classes to reduce overall risk