Personal Finance Test 1

Question 1

An agreement between you and lender that allows you to borrow money to purchase or refinance a home and gives lender right to take your property if you fail to repay money you’ve borrowed.

Answer 1

MORTGAGE

Question 2

Money paid regularly at particular rate for use of money lent or for delaying repayment of debt.

Answer 2

LOAN INTEREST

Question 3

Sum of money lent or invested on which interest is paid. The portion of a payment that goes toward product (house, car, property, etc.)

Answer 3

LOAN PRINCIPAL

Question 4

A right to keep possession of property belonging to another person until debt owed by that person is discharged/paid in full.

Answer 4

LIEN

Question 5

Processing fees you pay to your lender when you close on your loan (usually 3-6% of your total loan balance).

Answer 5

LOAN CLOSING COST

Question 6

Part of your monthly loan payment is deposited to cover some of the costs associated w home ownership.

Answer 6

LOAN ESCROW

Question 7

Fee that some lenders charge if you pay off all or part of your mortgage early.

Answer 7

PRE-PAYMENT/PRE-PAYMENT PENALTY

Question 8

The grantee/loan institution may subsidize loan (such as FHA loan) so that interest rate is lowered (ex. lowering from 5% to 3%) thereby lowering mortgage payment.

Answer 8

SUBSIDIZED LOANS

Question 9

The (FHA) Federal Housing Administration is part of HUD (US Housing & Urban Development) - the federal government insures/backs loan reducing risk of default, so your lender/bank can offer you better deal.

Answer 9

FHA LOAN

Question 10

MAKING A PLAN

Answer 10

Problem 1) you need more money
Problem 2) you need to reduce your debt
Problem 3) you need to change how you spend

Question 11

Financial issues that can affect individual

Answer 11

PERSONAL FINANCE

Question 12

Process of planning every aspect of your personal finances (detailed road map - spending/financing)

Answer 12

PERSONAL FINANCIAL PLANNING

Question 13

1) career decisions, 2) look for growing jobs/salaries, 3) state/local taxes 4) credit scores (impacts ability to borrow money

Answer 13

STEPS TO PERSONAL FINANCIAL PLANNING

Question 14

Apartment/electricity/car/phone/gas/food

Answer 14

EXPENSES

Question 15

Cost of pursuing one option instead of another expressed as value of activity you gave up

Answer 15

OPPORTUNITY COST

Question 16

Anything owned, such as cars, motorcycles, homes

Answer 16

ASSETS

Question 17

What we owe; debt

Answer 17

LIABILITIES

Question 18

Assets minus liabilities = _____

Answer 18

NET WORTH

Question 19

Act of resisting impulse to take immediately available reward in hope of obtaining more-valued reward in future.

Answer 19

DELAYED GRATIFICATION

Question 20

What do you want? Car/house/own business goal must be achievable

Answer 20

STEP 1: ESTABLISH YOUR FINANCIAL GOALS

Question 21

Within next year goals

Answer 21

SHORT TERM GOALS

Question 22

Within 1-5 years goals

Answer 22

INTERMEDIATE-TERM GOALS

Question 23

More than 5 years goals

Answer 23

LONG-TERM GOALS

Question 24

What are in Step 1 + definitions

Answer 24

1) Short-term goals - 1 year
2) Intermediate goals - 1-5 years
3) Long-term goals - 5+

Question 25

STEP 2: EVALUATE YOUR CURRENT FINANCIAL POSITION + what are in here

Answer 25

1) FORECAST - projection about what will happen in future 2) EXPENSES - anything on which we spend money 3) FIXED EXPENSE - expenses with remain same from period to period 4) VARIABLE EXPENSE - expenses that may change from one period to the next

Question 26

STEP 3: Identify and evaluate options for accomplishing your goals

Answer 26

There are multiple roads that reach the same destination. The same is true for financial goals (ex. roommate, work extra hours, etc.)

Question 27

Step 4: Pick the best plan + what it includes

Answer 27

RISK - possibility of financial loss

Question 28

STEP 5: Periodically Evaluate Plan

Answer 28

make sure you're on the right track.

Question 29

STEP 6: Revise Financial Plan as Necessary

Answer 29

make changes if necessary.

Question 30

STEP BY STEPS:

Answer 30

1) Establish your financial goals 2) Evaluate your current financial position 3) Identify and evaluate options for accomplishing your goals 4) Pick the best plan 5) Evaluate plans periodically 6) Revise financial plans if necessary.

Question 31

Proven step-by-step procedure to lead to correct solution (mathematical formula)

Answer 31

ALGORITHM

Question 32

Mental strategy that may or may not work in certain situations. Unlike algorithms, heuristics do not always guarantee the correct solution. However, this strategy allows people to simplify complex problems.

Answer 32

HEURISTICS

Question 33

Trying a number of different solutions and ruling out those that don't.

Answer 33

TRIAL AND ERROR

Question 34

When you realize you can solve problem based on something similar you've dealt with in the past.

Answer 34

INSIGHT

Question 35

People make assumptions about constraints and obstacles that prevent solutions.

Answer 35

ASSUMPTIONS

Question 36

Tendency to view problems in customary manner (prevents people from seeing all diff options)

Answer 36

FUNCTIONAL FIXEDNESS

Question 37

It is important to distinguish info that is relevant to the issue vs irrelevant data. When a problem is complex, it is easy to focus on misleading info.

Answer 37

IRRELEVANT/MISLEADING INFO

Question 38

Tendency to only use solutions that have worked in past vs. alternate ideas.

Answer 38

MENTAL SET

Question 39

9-Digit number printed in bottom left corner of each check (first set at bottom) - bank's specific number

Answer 39

ROUTING NUMBER

Question 40

(10-12 digits) and second set on bottom

Answer 40

ACCOUNT NUMBER

Question 41

Lower right and upper right corner

Answer 41

CHECK NUMBER

Question 42

Check that has been written but it hasn't been cashed-deposited by bank or otherwise cleared by the bank.

Answer 42

OUTSTANDING CHECK

Question 43

Summary of banking business activity that reconciles an entity's bank account w its financial records. The statement outlines the deposits, withdraws, and other activities affecting bank # in certain period.

Answer 43

BANK RECONCILIATION STATEMENT

Question 44

To make one account consistent with another especially by allowing for transactions begun but not yet completed.

Answer 44

RECONCILE

Question 45

Having taken more money out of bank account than the account contained.

Answer 45

OVERDRAWN ACCOUNT

Question 46

Lets you borrow money through your current account by taking out more money than you have in the account. There is no charge for this. Also a type of loan.

Answer 46

OVERDRAFT

Question 47

investment style that mimics an index or matches a benchmark

Answer 47

passive

Question 48

type of mutual fund that tracks benchmark or index

Answer 48

Index Fund

Question 49

possibility of losses compared with the probablility of expected return on investment

Answer 49

risk

Question 50

amount that revenues exceed expenses; profit

Answer 50

surplus

Question 51

government watchdog entity for investments and securities (abbreviation)

Answer 51

SEC

Question 52

fee charged to an investor by broker to trade a security

Answer 52

commission

Question 53

document setting forth income and spending used for planning

Answer 53

budget

Question 54

standard used to measure performance of investment

Answer 54

benchmark

Question 55

ownership in an asset

Answer 55

equity

Question 56

legal precedure involving an entity unable to pay debts

Answer 56

bankruptcy

Question 57

investment vehicle comprised of securities using funds pooled from many investors

Answer 57

mutual fund

Question 58

debt investment wherein one party lends money to another

Answer 58

bond

Question 59

spreading investments in different securities/asset classes

Answer 59

diversification

Question 60

payment to an employee based on hours or days worked

Answer 60

wage

Question 61

amount earned on an investment expressed as %

Answer 61

return

Question 62

index fund that trades like a security

Answer 62

FDIC, NCUA, inflation, wants and needs, principal balance, APR, money value, captal market, money market, thrift (credit union not to make money but to cut profit margin), financial compensation all 15 on doc traditional IRA, educational 529, statement account (of principal and interest earnings), interest earning checking account (draws interest), CDs, simple interest, compound interst, bonds, mutual fund

Question 63

government entity that insures bank deposits (abbreviation)

Answer 63

FDIC

Question 64

investment vehicle comprised of securities using funds pooled from many investors

Answer 64

mutual fund

Question 65

debt investment wherein one party lends money to another

Answer 65

bonds

Question 66

calculated on original amount of loan

Answer 66

simple interest

Question 67

accumulated interest on previous accounts

Answer 67

compound interest

Question 68

amount paid in cash for asset from third party

Answer 68

money value