Test Your Financial Knowledge!

Earned income refers to the money that an individual receives in exchange for their work or services. It includes various forms of compensation such as wages, salaries, tips, commissions, and bonuses. These are all examples of income that are earned through one's employment or self-employment activities. Therefore, the statement that "The following are examples of earned income: wages, salaries, tips, commissions, and bonuses" is true.

The explanation for the given correct answer is that interest is indeed a charge that borrowers or debtors pay for the use of money. It is calculated based on the interest rate, the duration of the debt, and the amount borrowed. This charge is a common practice in lending and borrowing transactions, where lenders earn income from the interest charged on the borrowed amount. Therefore, the statement "Interest is a charge that is paid by any borrower or debtor for the use of money, which is calculated on the basis of the rate of interest, time period of the debt and the principal amount that was borrowed" is true.

A balloon payment refers to a lump-sum payment that is made at the end or maturity of a balloon loan. A balloon loan is a type of loan where the borrower makes smaller monthly payments over the course of the loan term, but the remaining balance becomes due in one large payment at the end. This final payment is known as the balloon payment. It is typically larger than the previous payments and is used to pay off the remaining principal balance of the loan.

Appreciation refers to the increase in value or worth of an asset over time. It is a measure of the continued rise in the value of an asset, indicating that the asset has gained in importance or worth. This can be seen in various contexts, such as the appreciation of real estate or the appreciation of stocks in the financial market. Overall, appreciation signifies the positive change in value and is an important concept in assessing the performance and profitability of investments.

A secured loan is a type of loan that is backed by collateral, which can be either real or personal property. This means that if the borrower fails to repay the loan, the lender has the right to seize and sell the collateral to recover the amount owed. This type of loan provides a level of security for the lender, as they have an asset to fall back on in case of default. Therefore, the correct answer is "a loan which is backed by a pledging of real or personal property (collateral) by the borrower to the lender."

The correct answer is annual percentage rate (APR). The APR is calculated by dividing the total financing costs associated with a loan, such as interest and fees, by the principal amount. It represents the true cost of borrowing, including both the interest rate and any additional costs. The APR allows borrowers to compare different loan offers and understand the total cost of the loan over its term.

Amortization refers to the process of gradually paying off a debt over a specific period of time. It involves making regular payments that include both the principal amount borrowed and the interest accrued. This process allows the borrower to spread out the repayment of the debt, making it more manageable and affordable. Therefore, the correct answer is "the process of liquidating a debt over a period of time."

A Certificate of Deposit (CD) is a financial product that promises the depositor to return the sum of money they deposited along with appropriate interest. This means that when someone invests in a CD, they are guaranteed to receive their initial deposit back at the end of the term, along with the interest that has been earned. This makes CDs a low-risk investment option for individuals who want to earn interest on their savings without the volatility of other investment options.