What is the definition of 401(k)?

• An employer-sponsored account where employees can save money from each paycheck to be used in retirement.

• An individual savings plan managed solely by the employee without any employer contributions.

• A government-managed retirement fund funded by taxes.

• A bank-managed investment account specifically for saving money for daily expenses.

Answer explanation

A 401(k) is an employer-sponsored retirement savings plan that allows employees to save a portion of their paycheck, often with employer matching contributions, to be used during retirement.

What is the definition of 403(b)?

• A retirement plan for the benefit of employees of public schools, some hospitals, and certain tax-exempt organizations.

• A savings account for personal expenses during retirement.

• An insurance policy for the protection against retirement risks.

• A government-sponsored pension plan for federal employees.

Answer explanation

A 403(b) is specifically designed as a retirement plan for employees of public schools, certain hospitals, and tax-exempt organizations, making the first choice the correct definition.

What is the definition of Asset?

• Property owned by a person that has value and could be used to pay off debt.

• A financial obligation or debt owed to another party.

• A source of income that generates regular cash flow.

• An expense incurred in the process of earning revenue.

Answer explanation

An asset is defined as property owned by a person that has value and can be used to pay off debt. This distinguishes it from liabilities, which are debts owed to others.

What is the definition of Appreciation?

• An increase in monetary value.

• A decrease in monetary value.

• An increase in purchasing power.

• A downward trend in market prices.

Answer explanation

Appreciation refers to an increase in monetary value, indicating that an asset or investment has gained worth over time. This is the correct definition, distinguishing it from depreciation, which signifies a decrease in value.

What is the definition of Bad debt?

• Debt that does not increase your net worth or help you earn more money.

• Debt that increases your net worth by generating wealth.

• Debt that is repaid with interest and improves your credit score.

• Debt used to purchase assets that appreciate over time.

Answer explanation

Bad debt refers to debt that does not contribute to your net worth or generate income. The correct choice highlights that such debt does not help you financially, unlike good debt that can enhance wealth.

What is the definition of Budget?

• A plan for income and expenses during a set period of time.

• A detailed forecast of the economic market.

• A record of past spending activities.

• A calculation of net profit figures.

Answer explanation

A budget is defined as a plan for income and expenses during a set period of time, helping individuals or organizations manage their finances effectively.

What is the definition of Cash advance?

• Small amounts of money borrowed from credit card lenders at a very high interest rate.

• A service allowing free cash withdrawals without fees.

• A short-term loan with no interest charges.

• A type of overdraft protection on your checking account.

Answer explanation

A cash advance refers to small amounts of money borrowed from credit card lenders, typically at a very high interest rate, making it an expensive way to access cash quickly.

What is the definition of Compound interest?

• A percentage of both the principal (original loan amount) and previously accrued interest that is added to the total amount owed on a loan.

• Calculated solely on the initial principal, without considering any interest that accumulates over time.

• A method where interest is accrued only once at the end of the loan period based on the simple interest formula.

• An interest method where the rate decreases over time as the principal is gradually reduced.

Answer explanation

Compound interest is calculated on both the principal and previously accrued interest, meaning the total amount owed increases over time. This distinguishes it from simple interest, which only considers the principal.

What is the definition of Compounding returns?

• When the value of your investment grows based not only on the original amount of money invested, but also on the profits that investment created.

• When your investment grows only from the initial principal without any reinvestment of earnings.

• When interest earned is not reinvested into the investment, leading only to simple growth.

• When additional funds are regularly added to the investment without considering any earned profit.

Answer explanation

Compounding returns occur when your investment grows based on both the initial amount and the profits generated. This means that earnings are reinvested, leading to exponential growth over time.

What is the definition of Credit score?

• A numerical value based on analysis of a credit record, describing a person’s likelihood of paying back loans; credit scores range from 300 to 850.

• A monthly report of loan repayments.

• A fixed rate interest applied to every loan.

• A guarantee of loan approval from financial institutions.

Answer explanation

The correct choice defines a credit score as a numerical value reflecting a person's creditworthiness, based on their credit history, with scores ranging from 300 to 850, unlike the other options which are incorrect.