Chapter 1 Key Terms

Question 1

the seven steps to a healthy financial plan

Answer 1

baby steps

Question 2

Interest paid on interest previously earned; credited daily, monthly, quarterly, semiannually on both principal and previously credited interest

Answer 2

compound interest

Question 3

Three to six months of expenses in readily available cash to be used only in the event of an emergency; Baby Step 1 begins the process, and Baby Step 3 is the completed amount

Answer 3

emergency fund

Question 4

Percentage paid to a lender for the use of borrowed money

Answer 4

interest rate

Question 5

Mutual fund that seeks to maintain a stable share price and to earn current income by investing in interest-bearing instruments with short-term (usually 90 days or less) maturities

Answer 5

money market mutual fund

Question 6

Saving money for a specific purpose to allow interest to work for you rather than against you

Answer 6

sinking fund