Wise Financial Literacy Test Prep (Part 2 of 4)

26. When the amount of income on a budget is greater than the amount actually spent on expenses, the person has a

• A.   surplus.
• B.  deficit.
• C.   balanced plan.
• D.  new liability.

27. When interest is computed once on a dollar amount (the principal), it is

• A.   simple interest.
• B.  principal interest.
• C.   the APY.
• D.  compound interest.
  

28. A person decided to have six months of income in an emergency savings account. Is this a good decision?

• A.   No, because he should place the money in a diversified portfolio.
• B.  No, because emergency accounts are no longer advisable.
• C.   Yes, because the money can be used as a down payment when buying a used car.
• D.  Yes, because the money in the emergency account can be used if he loses his job.

29. Students applying for financial aid to attend college usually need to

• A.   complete a Free Application for Federal Student Aid (FAFSA) form.
• B.  obtain a transcript.
• C.   write an essay.
• D.  send a credit report from one of the three credit reporting agencies.

30. A person choosing a mortgage usually selects a fixed-rate loan because she knows that

• A.   the interest rate remains the same for the life of the mortgage.
• B.  her income will increase within the next three years.
• C.   the interest rates are going down.
• D.  her homeowners insurance premiums will be lower.

31. Why does a bank pay interest to a depositor?

• A.   The bank is able to use deposits to earn profits.
• B.  It is a requirement of the Federal Deposit Insurance Corporation (FDIC).
• C.   It helps the bank invest in the local community.
• D.  It is a benefit of having a bank credit card.

32. It is generally better for a person to buy a home that she can afford than to rent an apartment because she will

• A.   build equity.
• B.  have fixed insurance needs.
• C.   have a lower debt to credit ratio.
• D.  avoid bankruptcy.

33. Which of the following would be considered an asset?

• A.   Credit card account.
• B.  Checking account.
• C.   Car loan.
• D.  Student loan.

34. “Paying yourself first” is a strategy to

• A.   revise goals.
• B.  make impulse purchases.
• C.   create a budget.
• D.  build savings.

35. What kind of income can a person earn from savings accounts at a commercial bank?

• A.   Wage.
• B.  Dividend.
• C.   Interest.
• D.  Capital gains.