Test Your Financial Knowledge!

2.

What is a Certificate of Deposit?

Percentage of the principal amount that is paid as an interest for the use of money
Promises the depositor the sum back along with appropriate interest.
Interest that is compounded on a sum of money that is deposited for a long time.
All of the above

Correct Answer

A. Promises the depositor the sum back along with appropriate interest.

Explanation

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.

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3.

What is a secured loan?

Clearing the current loan with the proceeds of a new one and using the same property for collateral
A loan for which the interest rate remains constant and fixed throughout the lifetime of the loan.
A loan which is backed by a pledging of real or personal property (collateral) by the borrower to the lender.
All of the above

Correct Answer

A. A loan which is backed by a pledging of real or personal property (collateral) by the borrower to the lender.

Explanation

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."

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4.

The following are examples of earned income: wages, salaries, tips, commissions, and bonuses.

True
False

Correct Answer

A. True

Explanation

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.

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5.

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.

True
False

Correct Answer

A. True

Explanation

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.

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6.

What financial term is calculated by dividing the total financing costs associated with a loan divided by the principal amount?

Annual percentage rate (APR)
Debt to income ratio
An adjustable rate
All of the above

Correct Answer

A. Annual percentage rate (APR)

Explanation

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.

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7.

What does amortization mean?

The amount of interest owed to a lender
The process of liquidating a debt over a period of time
The process of determining the fair market value of an asset
All of the above

Correct Answer

A. The process of liquidating a debt over a period of time

Explanation

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."

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8.

What is a balloon payment?

Bridge loan
Payment for party balloons
A lump-sum payment at a maturity of a balloon loan
Decrease in value of an asset over time

Correct Answer

A. A lump-sum payment at a maturity of a balloon loan

Explanation

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.

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9.

What does appreciation mean?

A certificate of debt
A short-term loan made until a longer term financing is obtained
Current assets
The measure of a continued rise in the worth of an asset

Correct Answer

A. The measure of a continued rise in the worth of an asset

Explanation

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.

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Test Your Financial Knowledge!

Quiz Preview

What is a Certificate of Deposit?

What is a secured loan?

The following are examples of earned income: wages, salaries, tips, commissions, and bonuses.

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.

What financial term is calculated by dividing the total financing costs associated with a loan divided by the principal amount?

What does amortization mean?

What is a balloon payment?

What does appreciation mean?