Financial Terms and Concepts Quiz

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Questions and Answers

Which one of the following best describes inflation?

  • A general decrease in prices
  • A specific decrease in prices
  • A general increase in prices (correct)
  • A specific increase in prices

What is the purpose of diversification in investing?

  • To reduce risk in the portfolio (correct)
  • To reduce exposure to market volatility
  • To increase exposure to market volatility
  • To increase risk in the portfolio

What does correlation measure?

  • The risk associated with an investment
  • The price movement of an asset with respect to another asset (correct)
  • The return on an investment
  • The interest rate of an investment

What is an escalation clause in an agreement?

<p>An agreement to raise prices in the future (C)</p> Signup and view all the answers

What is VUL?

<p>Variable Universal Life insurance (D)</p> Signup and view all the answers

Which one of the following is true about amortizing loans?

<p>They require the borrower to pay a fixed amount regularly (C)</p> Signup and view all the answers

What is the purpose of a loan amortization table?

<p>To illustrate how a loan is prepared (B)</p> Signup and view all the answers

What happens to the interest expense in a loan amortization?

<p>It is adjusted based on the principal balance (B)</p> Signup and view all the answers

Which one of the following is true about principal payments in amortizing loans?

<p>They are fixed (B)</p> Signup and view all the answers

Flashcards

What is inflation?

A general increase in the prices of goods and services in an economy.

What is diversification in investing?

A strategy in investing to reduce risk by spreading investments across different asset classes, sectors, or companies.

What does correlation measure?

A statistical measure of the relationship between the price movements of two assets.

What is an escalation clause?

A clause in a contract that allows prices to increase in the future, usually based on a predetermined formula or index.

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What is VUL?

A type of life insurance policy that combines death benefit coverage with investment options.

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What is an amortizing loan?

A loan repayment structure where the borrower pays a fixed amount each period, consisting of both principal and interest.

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What is a loan amortization table?

A table that shows the breakdown of each loan payment, including the principal and interest portions.

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What happens to the interest expense in a loan amortization?

The interest expense is calculated on the remaining principal balance of the loan, decreasing with each payment.

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What are principal payments in amortizing loans?

The principal payments are fixed in amortizing loans, meaning the same amount is paid towards the principal each period.

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