Credit, Savings And Investment

1. Credit cards allow the user to _________

Spend only the amount in your account

Borrow money for a short term

Transfer money between accounts on-line

Credit cards allow the user to borrow money for a short term. Unlike debit cards, which require the user to have sufficient funds in their account to make a purchase, credit cards allow users to make purchases even if they do not have the funds readily available. The cardholder essentially borrows money from the credit card company, with the understanding that they will repay the borrowed amount, along with any interest or fees, within a specified time period. This borrowing capability provides users with flexibility and the ability to make purchases even when they may not have the immediate funds to do so.

Explanation

Credit cards allow the user to borrow money for a short term. Unlike debit cards, which require the user to have sufficient funds in their account to make a purchase, credit cards allow users to make purchases even if they do not have the funds readily available. The cardholder essentially borrows money from the credit card company, with the understanding that they will repay the borrowed amount, along with any interest or fees, within a specified time period. This borrowing capability provides users with flexibility and the ability to make purchases even when they may not have the immediate funds to do so.

2. Stocks represent ownership in a company.

True

False

Justify your response with an explanation and/or example.

Explanation

Justify your response with an explanation and/or example.

3. A mortgage is an example of a closed-end credit.

True

False

Justify your response with an explanation and/or example.

Explanation

Justify your response with an explanation and/or example.

4. A bear market occurs when investors are pessimistic about the economy.

True

False

Justify your response with an explanation and/or example.

Explanation

Justify your response with an explanation and/or example.

5. A portfolio that includes stocks invested in one (1) sector of the market is considered to be diversified.

True

False

Justify your response with an explanation and/or example.

Explanation

Justify your response with an explanation and/or example.

6. A FICO score is a measure of _____________.

A potential borrower's credit worthiness

The likelihood an individual will repay a loan

An individual's assets

Both A and B

A FICO score is a measure of both a potential borrower's credit worthiness and the likelihood that they will repay a loan. It takes into account various factors such as payment history, credit utilization, length of credit history, and types of credit used to assess the individual's ability to manage credit and repay debts. This information is used by lenders to determine the risk associated with lending money to the individual.

Explanation

A FICO score is a measure of both a potential borrower's credit worthiness and the likelihood that they will repay a loan. It takes into account various factors such as payment history, credit utilization, length of credit history, and types of credit used to assess the individual's ability to manage credit and repay debts. This information is used by lenders to determine the risk associated with lending money to the individual.

7. Conservative, risk-adverse investors are attracted to small-cap stocks.

True

False

Justify your response with an explanation and/or example.

Explanation

Justify your response with an explanation and/or example.

8. BONUS: _________ are similar to mutual funds. They invest in a sector of the market or the stocks that make up an index, such as the Nasdaq100.

Index funds

Exchange Traded Funds (ETFs)

Commodities

Exchange Traded Funds (ETFs) are similar to mutual funds as they also invest in a sector of the market or the stocks that make up an index, such as the Nasdaq100. ETFs are traded on stock exchanges, allowing investors to buy and sell them throughout the trading day at market prices. This provides investors with the flexibility and liquidity that mutual funds may not offer.

Explanation

Exchange Traded Funds (ETFs) are similar to mutual funds as they also invest in a sector of the market or the stocks that make up an index, such as the Nasdaq100. ETFs are traded on stock exchanges, allowing investors to buy and sell them throughout the trading day at market prices. This provides investors with the flexibility and liquidity that mutual funds may not offer.

9. The P/E ratio for a stock represents________________.

The price an investor is willing to pay for $1 worth of earnings.

The priceof a stock in relation to the earnings per share

Both A and B

The P/E ratio for a stock represents both the price an investor is willing to pay for $1 worth of earnings and the price of a stock in relation to the earnings per share. This ratio is commonly used by investors to assess the valuation of a stock and determine if it is overvalued or undervalued. A higher P/E ratio suggests that investors are willing to pay more for each dollar of earnings, indicating a potentially overvalued stock. Conversely, a lower P/E ratio suggests that the stock may be undervalued.

Explanation

The P/E ratio for a stock represents both the price an investor is willing to pay for $1 worth of earnings and the price of a stock in relation to the earnings per share. This ratio is commonly used by investors to assess the valuation of a stock and determine if it is overvalued or undervalued. A higher P/E ratio suggests that investors are willing to pay more for each dollar of earnings, indicating a potentially overvalued stock. Conversely, a lower P/E ratio suggests that the stock may be undervalued.

10. The trade-off made by making one choice instead of another is commonly referred to as a(n)

Trade decision

Opportunity cost

Personal choice

When making a choice, there is always a trade-off involved. This means that by choosing one option, we are giving up the opportunity to choose another option. This trade-off is known as the opportunity cost. It represents the value of the next best alternative that is forgone when a decision is made. In other words, it is the cost of the missed opportunity. Therefore, the term "opportunity cost" is the most appropriate explanation for the given correct answer.

Explanation

When making a choice, there is always a trade-off involved. This means that by choosing one option, we are giving up the opportunity to choose another option. This trade-off is known as the opportunity cost. It represents the value of the next best alternative that is forgone when a decision is made. In other words, it is the cost of the missed opportunity. Therefore, the term "opportunity cost" is the most appropriate explanation for the given correct answer.

11. The par value of a bond represents its ____________.

Comparative value to other bonds issued by the same entity

Total value, calculated by adding principal and interest

Face value

Discount rate

The par value of a bond represents its face value, which is the amount that the bondholder will receive at maturity. It is the amount that the bond issuer promises to repay to the bondholder. The par value is typically stated on the face of the bond certificate and is used to calculate the interest payments that the bondholder will receive over the life of the bond.

Explanation

The par value of a bond represents its face value, which is the amount that the bondholder will receive at maturity. It is the amount that the bond issuer promises to repay to the bondholder. The par value is typically stated on the face of the bond certificate and is used to calculate the interest payments that the bondholder will receive over the life of the bond.

12. Which of the "five C's of credit" require that a peson's assets exceed his or her liabilities?

Capacity

Capital

Collateral

Capital is one of the "five C's of credit" that require a person's assets to exceed their liabilities. Capital refers to the financial resources that an individual or business has available, such as savings, investments, or equity in property. Lenders consider capital when assessing creditworthiness because it indicates the borrower's ability to repay the loan if their income or cash flow is insufficient. Having a higher capital-to-liabilities ratio demonstrates financial stability and reduces the risk for the lender, making it more likely for the borrower to be approved for credit.

Explanation

Capital is one of the "five C's of credit" that require a person's assets to exceed their liabilities. Capital refers to the financial resources that an individual or business has available, such as savings, investments, or equity in property. Lenders consider capital when assessing creditworthiness because it indicates the borrower's ability to repay the loan if their income or cash flow is insufficient. Having a higher capital-to-liabilities ratio demonstrates financial stability and reduces the risk for the lender, making it more likely for the borrower to be approved for credit.