Vocab Test 1

Question 1

Variable expense

Answer 1

Fluctuate in amount so you usually have more control over how much they’ll be

Question 2

Rule 72

Answer 2

How long will it take to double your money?

72/interest rate%

Question 3

Time value of money

Answer 3

The relationship among time, money, and rate of interest

Question 4

The 3 c’s

Answer 4

Capital: assets like property and savings
Character: responsible use and payment history
Capacity: ability to repay based on income and current debts

Question 5

Credit score

Answer 5

A number assigned to a person that indicates to the lenders their capacity to repay a loan (FICO Score)

Question 6

Installment Loans

Answer 6

A loan that is repayed over time with a set number of scheduled payments; normally at least 2 payments are made towards the loan

Question 7

Premium

Answer 7

The specific amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time

Question 8

Term life insurance

Answer 8

A policy with a set duration limit on the coverage period. Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or let the coverage end

Question 9

Blue chip stock

Answer 9

Stock of a large well established and financially sound company that has operated for many years

Question 10

Common stock

Answer 10

A security that represents ownership in a corporation holders of common stock exercise control by electing a board of directors and voting on corporate policy

Question 11

Diversification

Answer 11

A risk management technique that mixes a wide variety of investments within a portfolio

Question 12

Dividend

Answer 12

a distribution of a portion of a companys earnings, decided by the board of directors to a class of its shareholders

Question 13

Liquidity

Answer 13

The degree to which an asset or security can be bought or sold in the market, and converted to cash, without affecting the asset’s price

Question 14

Mutual fund

Answer 14

An investment vechile that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets

Question 15

401 (k)

Answer 15

A qualified plan established by the employer to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and or pretax bias

Question 16

Asset

Answer 16

A resource with economic value that an individual corporation or country owns or controls with the expectation that it will provide future benefit

Question 17

Roth IRA

Answer 17

An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free

Question 18

Opportunity Cost

Answer 18

Cost of alternative that must be forgone in order to pursue a certain action