Financial Management Terms

What is the term for a state of the economy in which the general price level is increasing?

Recession
Depression
Inflation (correct)
Deflation

What is the purpose of a balance sheet?

To describe a person's financial position at a given point in time (correct)
To project future financial performance
To determine taxable income
To track income and expenses over time

What is gross salary?

The amount of money earned before taxes and deductions (correct)
Take-home pay after taxes and deductions
The total amount of money earned in a year
The amount of money earned per hour

Why is fair market value important when reporting assets on a balance sheet?

It helps businesses survive during financially difficult times (C) Signup and view all the answers

How do you know that you are solvent?

When your current assets exceed your current liabilities (B) Signup and view all the answers

What is taxable income?

Gross income minus deductions and adjustments (B) Signup and view all the answers

What is the term for a check that has been written but not yet cleared by the bank?

Outstanding check (C) Signup and view all the answers

What is the formula for calculating compound interest?

P = C (1 + r/n)nt (C) Signup and view all the answers

What type of bank has grown in popularity due to its convenience, allowing customers to bank from anywhere, anytime?

Online bank (D) Signup and view all the answers

Which organization protects and insures funds for credit unions?

NCUA (D) Signup and view all the answers

What is the term for the process of financing a purchase or loan again, typically at a lower interest rate?

Refinance (A) Signup and view all the answers

What is the amount that a dealership is willing to assign towards the purchase of a new car?

Trade-in value (C) Signup and view all the answers

What is the first step in the auto-buying process?

Determining how much you can afford (D) Signup and view all the answers

What is the purpose of a credit bureau?

To collect and store credit information about individual borrowers (A) Signup and view all the answers

What is the recommended percentage for a down payment?

20% (B) Signup and view all the answers

What is the calculation for loan-to-value ratio of a home?

Dividing mortgage amount by the value of the property, then multiplying by 100 (B) Signup and view all the answers

What is the key to building a strong credit history?

Paying credit card or loan payments on time, every time (B) Signup and view all the answers

What are the 5 Cs of Credit?

Character, Capacity, Capital, Collateral, Condition (A) Signup and view all the answers

What is the primary purpose of a 401(k) plan?

To allow an employee to elect to have the employer contribute a portion of the employee's wages to an individual account (A) Signup and view all the answers

What is the recommended strategy for starting to plan for retirement?

Setting investing goals, figuring out how much to invest, choosing an investment account, and selecting investments (C) Signup and view all the answers

What is the primary benefit of compound interest in a 401(k) account?

Causes the retirement savings to grow into a sizeable sum (A) Signup and view all the answers

What is the typical age for people born after 1960 to receive full Social Security benefits?

62 (C) Signup and view all the answers

What is the primary goal of estate planning?

To develop a plan to administer and distribute your assets in a manner consistent with your wishes (A) Signup and view all the answers

What is the primary purpose of a will?

To determine where all your assets go when you die (B) Signup and view all the answers

What is the main purpose of homeowner's insurance?

To cover the replacement value of a home and its contents (C) Signup and view all the answers

What is not typically covered under most homeowner's insurance policies?

Flooding due to sewer backup or mold (A) Signup and view all the answers

How does a higher deductible affect health insurance?

It reduces the risk transfer, resulting in lower premiums (C) Signup and view all the answers

What is the maximum age at which family health care insurers must allow parents to cover their children?

26 (A) Signup and view all the answers

What is reimbursed under replacement-cost coverage?

The amount necessary to repair, rebuild, or replace an asset at today’s prices (A) Signup and view all the answers

How does a low credit score affect homeowner's insurance?

It increases the premium (B) Signup and view all the answers