Financial Terms and Concepts

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What is the primary purpose of a budget?

To track past income and expenses

To forecast future income and expenses (correct)

To determine fair market value

To calculate taxable income

What is the term for the amount of income subject to taxes?

Taxable income (correct)

Gross earnings

Net worth

Gross salary

What is the significance of fair market value in a balance sheet?

It is the actual value of an asset in the open market (correct)

It allows for asset reduction during financially difficult times

It helps in calculating taxable income

It determines the solvency of a business

What are the three parts of a balance sheet?

Assets, liabilities, and net worth or equity Signup and view all the answers

How do you determine if a business is solvent?

When its current assets exceed its current liabilities Signup and view all the answers

What is the formula for calculating market value of a property?

The question is not applicable to property Signup and view all the answers

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

Outstanding check Signup and view all the answers

What is the formula for calculating compound interest?

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

What type of banks have grown in popularity due to their convenience?

Online banks Signup and view all the answers

What is the primary function of the FDIC?

To insure funds for commercial banks Signup and view all the answers

What is the primary goal of determining how much you can afford in the auto-buying process?

To ensure a successful purchase Signup and view all the answers

What does a credit bureau primarily do?

Collect and store credit information about individual borrowers Signup and view all the answers

What is another term for a checking account?

Demand deposit account Signup and view all the answers

What is the purpose of property taxes?

To fund local government services and schools Signup and view all the answers

What is the recommended step to take if you're expecting difficulties with your payments?

Notify your creditors Signup and view all the answers

What is the primary purpose of a credit report?

To store credit information about individual borrowers Signup and view all the answers

What is the loan-to-value ratio of a home calculated by?

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

What are the 5 Cs of Credit?

Character, capacity, capital, collateral, condition Signup and view all the answers

What percentage of your take-home pay should you not exceed with consumer credit?

10% to 15% Signup and view all the answers

What is the primary purpose of a consolidation loan?

To convert many debts into one loan payment Signup and view all the answers

What type of loan is repaid in a series of fixed, scheduled payments?

Installment loan Signup and view all the answers

What is required to secure a single-payment loan?

Collateral Signup and view all the answers

What is the primary purpose of life insurance?

To pay out a sum of money on death or after a set period Signup and view all the answers

What should be the first question to ask before purchasing life insurance?

What is the purpose of purchasing life insurance? Signup and view all the answers

What is the primary source of profit for investors in the stock market?

Capital gains Signup and view all the answers

What is the benefit of investing in the long term?

Increased chance of profit Signup and view all the answers

What is the purpose of an index fund?

To follow a benchmark index Signup and view all the answers

What is the relationship between risk and return in investing?

Higher risk, higher return Signup and view all the answers

How are cash dividends typically paid out to investors?

Quarterly, based on ownership at the time of declaration Signup and view all the answers

What is the definition of a sector fund?

An investment fund that invests in one type of industry or sector Signup and view all the answers