Questions and Answers
What is budget variance?
What does the debt ratio indicate?
How is debt ratio calculated?
By dividing liabilities by net worth.
What type of tax does the government impose on specific goods like alcohol and gasoline?
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What are capital gains?
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Capital gains are taxed when the asset is sold.
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An ______ fund should be an important consideration when saving money.
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What is liquidity?
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What does the Truth in Lending Act require?
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What is a deductible?
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What is a collateralized loan?
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Bankruptcy will appear on a person's credit report for 10 years.
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What is a treasury bill (T-bill)?
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What does 'money orders' refer to?
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What should you do if you believe you are being charged too high a rate of interest for a loan?
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Study Notes
Budget Variance
- Represents the difference between budgeted and actual expenditures.
Debt Ratio
- Indicates the relationship between an individual's debt and net worth.
- A lower debt ratio reflects better financial health.
- Calculated by dividing total liabilities by net worth.
Excise Tax
- A government tax imposed on specific goods and services, including alcohol, cigarettes, gasoline, and airline tickets.
Capital Gains
- Profits earned from the sale of capital assets like stocks and bonds.
- Tax on capital gains is deferred until the asset is sold.
- Long-term capital gains (held over one year) are taxed at lower rates or may not be taxed.
Variable Expenses
- Expenses that fluctuate from period to period, such as electricity and food costs.
Financial Planning
- Involves creating and executing an organized series of actions to achieve financial success.
- Requires regular review and adjustments to meet evolving needs and goals.
Emergency Fund
- Essential for managing unexpected expenses.
Liquidity
- Refers to how easily an asset can be converted into cash.
Social Security
- Benefits are based on a person's earnings accumulated over their work life.
Department Store Charge Cards
- A type of open-end credit with a set line of credit offered by banks.
Mortgage Loan
- A form of closed-end credit with a specified interest rate for a designated term.
Collateralized Loan
- A secured loan backed by collateral that can be seized upon default, such as pawnshop transactions.
FHA Loan
- Insured by the Federal Housing Administration for lenders making riskier mortgage loans.
Uncollateralized Loan
- A personal loan not secured by assets.
Bankruptcy
- A significant negative mark on a credit report lasting ten years.
Installment Loan
- Repaid in equal periodic payments with interest.
Garnishment
- A legal process where creditors receive a court order to withhold earnings from an employee to pay a debt.
Interest Rates
- The cost for using someone else's money; influences savings accounts and inflation.
Credit Unions
- Non-profit organizations providing higher interest rates due to lower operating costs.
Truth in Lending Act
- Requires disclosure of finance charges and annual percentage rates to consumers.
Certificates of Deposit (CDs)
- Long-term savings vehicles with fixed interest rates; suitable when expecting interest rates to decline.
Usury Laws
- Regulations against charging excessively high interest rates on loans.
Liability Insurance
- Provides coverage for claims involving injuries or damages to others.
Savings Account Interest
- Subject to taxation.
Electronic Funds Transfer (EFT)
- Authorizes the electronic transfer of funds to or from an account, commonly used at ATMs.
Identity Theft
- A significant risk exposing consumers to fraudulent activities.
Stock Split
- An increase in outstanding shares without altering shareholder equity; e.g., a 2-for-1 split doubles shares while halving their value.
Treasury Bill (T-bill)
- A secure, low-risk investment backed by the U.S. government's credit.
Dividend Reinvestment
- The practice of using earned dividends to purchase additional shares of stock.
Securities
- Refers to investments including stocks, bonds, and mutual funds traded in the market.
Securities and Exchange Commission (SEC)
- A regulatory agency established to oversee the stock market and enforce appropriate practices in selling stocks and bonds.
Common vs. Preferred Stock
- Common stock offers voting rights but ranked lower for dividends.
- Preferred stock guarantees dividends but lacks voting rights.
Series EE Savings Bonds
- Tax-exempt from state and local taxes.
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Description
Test your knowledge of essential finance terms with this quiz. Explore concepts such as budget variance and debt ratio and understand their definitions and implications in personal finance. Perfect for students and professionals looking to refresh their financial vocabulary.
