Financial Literacy Semester 1 Final Exam

Front

What is the definition of Principal in a loan?

Back

Principal is the initial amount of money borrowed in a loan.

Front

What does Interest Rate mean?

Back

Interest Rate is the percentage charged by the lender on the borrowed amount, typically expressed annually.

Front

What is the difference between Subsidized and Unsubsidized loans?

Back

Subsidized loans are need-based and do not accrue interest while the borrower is in school, while Unsubsidized loans accrue interest from the time they are taken out.

Front

What is Revolving Credit?

Back

Revolving Credit is a type of credit that allows the borrower to use and repay funds repeatedly up to a certain limit, such as credit cards.

Front

What is Amortization in loans?

Back

Amortization is the process of paying off a loan over time through regular payments that cover both principal and interest.

Front

What happens to the interest portion of an amortized loan payment over time?

Back

The interest portion of an amortized loan payment decreases over time.

Front

What happens to the principal portion of an amortized loan payment over time?

Back

The principal portion of an amortized loan payment increases over time.

Front

What is the impact of making only the minimum payment on a credit card?

Back

Making only the minimum payment on a credit card leads to higher total costs due to accruing interest on the remaining balance.

Front

What is the formula for calculating monthly loan payments?

Back

The formula for calculating monthly loan payments is: M = P[r(1+r)^n] / [(1+r)^n – 1], where M is the total monthly mortgage payment, P is the principal loan amount, r is the monthly interest rate, and n is the number of payments.

Front

What is the term in a loan?

Back

The term is the length of time over which the loan must be repaid.