Personal Finance and Money Management Concepts, Exams of Community Corrections

Download Personal Finance and Money Management Concepts and more Exams Community Corrections in PDF only on Docsity! Wise Test Study Guide questions with correct answers What are the sources of income? - correct answer -wages, rentals, interest, capital, profits, investments, entrepreneurship What is exemption (allowance) and how does it work? - correct answer -allowance is used to reduce amount of taxed income What are Gift Cards and how do they work? - correct answer -they are a closed loop system and open loop system What is a money order? - correct answer -it is a payment order for a pre-specified amount of money and is purchased at different types of stores -- it is used as a check. Why does the U.S. currency have value even though it is not tied to a commodity? - correct answer -there is a belief that money has value and therefore is accepted. what is opportunity cost? - correct answer -the next best alternative -- it is what is given up when a choice is made. who is hurt the most and the least with inflation? - correct answer -most hurt are lenders (banks) and people living on a fixed income. Least hurt are those who owe large amounts of money. What is the role of the Treasury Department? - correct answer -collects taxes, prints money, issues treasury bonds What does it mean when you Pay-Yourself-First? - correct answer -automatically route money from paycheck to savings (before paying bills) What is a CD and what happens if you cash it before maturity? - correct answer -it is a time deposit offered at financial institutions -- penalty if cashed before maturity. Which institutions give loans? - correct answer -banks, credit unions, pawnshops, finance companies, payday lenders, tax preparers which institution(s) charge the highest interest rates on loans? - correct answer - pawnshops, payday lenders, tax refund lenders, finance companies what is a credit union and the advantage of using a credit union? - correct answer - member owned co-operative financial institution -- advantage is lower interest rates on loans what is overdraft protection and how does it work? - correct answer -overdraft protection is a feature offered by banks to keep your checking account from over- drafting when you write a check or swipe your debit card but don't have enough money in your account. It is a loan that is paid back. what is compound interest? - correct answer -interest added to principal -- interest earned on interest what is the time value of money? - correct answer -is calculated by value of money with given amount of interest earned over a period of time; the longer the time you keep your money invested, the more interest you will earn. what is the difference between Liquid financial products vs. products that are less liquid? - correct answer -savings and checking accounts are most liquid, certificate of deposit and money market accounts are less liquid. what is the Rule of 72? - correct answer -how long will it take to double an investment? Divide 72 by the interest rate to be earned. What does it mean when you Reconciling a checking account? why? and when? - correct answer -to view what activity has occurred in your account. keep current with your check register to know what your current balance is at all times. When you receive your bank statement, you reconcile your check register against the statement to be sure no errors have been made and to record any bank fees and/or interest earned in your register. what is collision coverage and when do consumers normally terminate this coverage? - correct answer -collision coverage on your car insurance policy that will repair damages to your vehicle when something collides with your vehicle. consumers terminate/ cancel the policy when the value of the car is less than the replacement pay out by insurance company. what is term life insurance? - correct answer -term life insurance is an insurance policy that will pay a lump-sum benefit to your family or another beneficiary of your choice, if you die while the policy is in effect. is not a permanent life insurance policy. what is whole life insurance? - correct answer -whole life insurance is a policy that is also a way to invest money. it is referred to as a permanent life insurance policy because, as long as you pay your premiums, the policy is yours for life, providing your loved ones with a guaranteed benefit upon your death. what is health insurance? - correct answer -is insurance against the risk of incurring medical expenses among individuals. by estimating the overall risk of health care and health system expenses, among a targeted group, an insurer can develop monthly premium to ensure that money is available to pay for the health care benefits specified in the insurance agreement. what is co-pay? - correct answer -is the amount of money you pay out-of-pocket for a covered medical service. co-pays are typically a flat dollar amount for a doctor's office visit, prescriptions or lab tests. what is renters insurance? - correct answer -is insurance you buy to protect your furniture, belongings, etc. in case of a burglary, fire, or some natural disaster. Also covers liability/ injury to others. what is disability insurance? - correct answer -disability insurance will cover your bills while you are disabled or cannot walk, with an injury or illness for a certain amount of time. Doesn't replace income how do you reduce the cost of auto insurance? - correct answer -get good grades, no accidents, good credit, and drive a certain type of car. what are securities/ equities? - correct answer -capital gains or loss from investments; dividends paid on investments; historical performance of stocks or the advantages of owning securities (high risks comes with high returns); primary markets (underwriting) vs. secondary markets (New York Stock Exchange; NASDAQ). For example, Twitter recently had an IPO (initial public offering) where there stock was first sold to the primary market (consisting primarily of institutional investors that arrange to purchase the stock through the underwriter; it is very difficult for an individual investor to buy stock in the primary market), the stock was then made available to the secondary market through the New York Stock Exchange. The initial price to the secondary market of the Twitter stock was much higher than the initial price paid in the primary market. You can think of the primary market as the market where the stocks are "created" and the secondary market as the market where they are traded. what are the purpose of bonds? and how do they work? - correct answer -a bond is a financial instrument that gives its holder/owner the right to collect interest payments from the company or organization that has borrowed money. A municipal bond is a bond that is issued by a city or some type of governmental agency. Government bodies usually issue tax-free municipal bonds to fund large capital expenses and improvements, like parks, downtown restorations, schools or airports. what are mutual funds and do they work? - correct answer -A mutual fund is defined as a professionally managed investment vehicle that is made up of pool of funds collected from many investors and invested in stocks, bonds, money markets and securities. Managed by fund manager. Mutual fund provide an easy way for small investors to diversify the investment. what are investment portfolios? - correct answer -A portfolio is a diversified (hopefully) set of investments held by an individual or institutional investor what is diversification? - correct answer -is when an investor has different type of investments (stocks, bonds, mutual funds, Treasury Bills, etc..) it reduces risk of investing - not putting "all your eggs in one basket" what are dividends? - correct answer -dividends are the earnings given to the people who are shareholders of the company stock. what are treasury bills? - correct answer -Treasury bills are short-term loans sold to operate the U.S. government. Amounts invested range from $1,000 to $5 million per investor. (Also known as T-Bills.)