#1
What is the meaning of APR in the context of personal finance?
Annual Percentage Rate
ExplanationA standardized measure of the cost of borrowing.
#2
What does the term 'credit score' represent in personal finance?
A measure of an individual's creditworthiness
ExplanationA numerical assessment of one's likelihood to repay debts.
#3
What is the purpose of emergency funds in personal finance?
To cover unexpected expenses and financial emergencies
ExplanationFunds reserved for unforeseen financial crises.
#4
What is the impact of late payments on a person's credit score?
Negative impact
ExplanationDiminishes creditworthiness and lowers credit score.
#5
In the context of personal finance, what does 'ROI' stand for?
Return on Investment
ExplanationMeasurement of the profitability of an investment.
#6
What is the difference between secured and unsecured loans?
Secured loans require collateral, while unsecured loans do not
ExplanationSecured loans are backed by assets, while unsecured loans are not.
#7
What is the debt-to-income ratio used for in personal finance?
To assess an individual's ability to manage debt in relation to income
ExplanationDetermines the proportion of income dedicated to debt repayment.
#8
What is the concept of compounding interest in the context of loans and investments?
Interest calculated on the initial principal and also on the accumulated interest
ExplanationEarning interest on both the initial investment and accumulated interest over time.
#9
What is the difference between a fixed-rate and an adjustable-rate mortgage?
Fixed-rate mortgage has a constant interest rate, while adjustable-rate mortgage can change over time
ExplanationInterest rate remains constant versus fluctuating over the loan term.
#10
What does the term 'identity theft' refer to in personal finance?
Stealing someone's personal information for fraudulent activities
ExplanationIllegally acquiring personal data to commit financial fraud.
#11
What is the debt snowball method in personal finance?
A method to pay off the smallest debts first, regardless of interest rates
ExplanationPriority given to clearing small debts for motivational momentum.
#12
What is the purpose of a 401(k) retirement account?
To save for retirement with tax advantages
ExplanationA tax-advantaged investment account for retirement savings.
#13
In personal finance, what is the significance of the term 'liquidity'?
The ability to convert assets into cash quickly
ExplanationEase of converting assets into readily usable cash.
#14
What is the significance of the FICO score in credit evaluation?
It evaluates the overall creditworthiness of an individual based on various factors
ExplanationStandard measure used by lenders to assess credit risk.
#15
What is the difference between a charge card and a credit card?
A charge card requires full payment each month, while a credit card allows carrying a balance
ExplanationMust pay balance in full monthly versus carrying debt.
#16
What is the role of the Federal Reserve in the U.S. economy?
To control inflation and interest rates
ExplanationOversees monetary policy to stabilize the economy.
#17
What is the concept of a 529 plan in personal finance?
A tax-advantaged savings plan for education expenses
ExplanationInvestment vehicle designed to fund education costs with tax benefits.