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web.groovymark@gmail.com
- December 18, 2024
Question 01
What does “cash flow statement” show in personal finance?
a) The amount of taxes paid annually
b) The assets and liabilities a person holds
c) Income and expenses over a specific period of time
d) The total net worth of an individual
Answer: c) Income and expenses over a specific period of time
Explanation: A cash flow statement summarizes an individual’s or family's income and expenses during a specific time frame, such as a month or a year, helping to track where money is coming from and where it is going.
Question 02
What is considered a “monetary asset”?
a) A piece of real estate property
b) A checking account balance
c) A retirement account
d) A vehicle owned by an individual
Answer: b) A checking account balance
Explanation: Monetary assets are liquid assets or cash equivalents, such as checking accounts, that can be quickly converted into cash with little or no loss in value.
Question 03
Which of the following is an example of a “short-term liability”?
a) Mortgage loan
b) Credit card debt
c) Car loan
d) Student loan
Answer: b) Credit card debt
Explanation: Short-term liabilities are obligations that are due within one year, such as credit card debt, while loans like mortgages and student loans are long-term liabilities.
Question 04
What does the term “fixed expenses” refer to?
a) Expenses that vary month-to-month
b) Expenses that remain constant over time
c) Expenses incurred only in emergencies
d) Expenses that depend on income levels
Answer: b) Expenses that remain constant over time
Explanation: Fixed expenses are those that stay the same from month to month, such as rent or mortgage payments, and are often predictable.
Question 05
. What is the meaning of “deficit” in a cash flow statement?
a) When income exceeds expenses
b) When expenses exceed income
c) When net worth is positive
d) When liabilities are lower than assets
Answer: b) When expenses exceed income
Explanation: A deficit occurs when total expenses are higher than total income during a specific period, indicating negative cash flow.
Question 06
What is the “fair market value” of an asset?
a) The price paid when the asset was purchased
b) The current market price a willing buyer would pay a willing seller
c) The future value of the asset
d) The price at which an asset is sold at auction
Answer: b) The current market price a willing buyer would pay a willing seller
Explanation: Fair market value refers to the price at which an asset would sell in the open market between a willing buyer and a willing seller.
Question 07
What is a “variable-rate loan”?
a) A loan with a fixed interest rate for the entire term
b) A loan where the interest rate fluctuates based on an underlying index
c) A loan with no interest rate
d) A loan that cannot be repaid early
Answer: b) A loan where the interest rate fluctuates based on an underlying index
Explanation: A variable-rate loan has an interest rate that can change over time depending on an external benchmark, such as the prime rate or LIBOR.
Question 08
What is the “prime rate”?
a) The rate at which banks lend to their least creditworthy customers
b) The interest rate used to calculate inflation
c) The rate charged to a bank’s most creditworthy customers
d) The lowest interest rate allowed by law
Answer: c) The rate charged to a bank’s most creditworthy customers
Explanation: The prime rate is the interest rate commercial banks offer to their most creditworthy customers and is often used as a benchmark for other loans.
Question 09
What does “deleveraging” mean in an economic context?
a) Increasing the amount of credit used
b) Reducing the use of credit in the economy
c) Expanding business operations through borrowing
d) Investing more in high-risk securities
Answer: b) Reducing the use of credit in the economy
Explanation: Deleveraging refers to the process of reducing the amount of borrowed funds used in the economy, often to decrease financial risk.
Question 10
What is the “Index of Leading Economic Indicators” (LEI) used for?
a) To assess current market conditions
b) To predict the future direction of the economy
c) To calculate inflation rates
d) To measure the current unemployment rate
Answer: b) To predict the future direction of the economy
Explanation: The LEI is a composite index that includes various economic indicators to help forecast future economic trends.
Question 11
What does the “GDP” measure in an economy?
a) Total government debt
b) Total value of goods and services produced within a country
c) The average income of individuals in the country
d) The stock market performance
Answer: b) Total value of goods and services produced within a country
Explanation: Gross Domestic Product (GDP) measures the total market value of all goods and services produced within a country during a given period.
Question 12
What is the main purpose of “renter’s contents broad form” (HO-4)?
a) To insure the dwelling of a renter
b) To protect the renter’s personal belongings from named perils
c) To cover liability for damage caused to others’ property
d) To insure the landlord’s property
Answer: b) To protect the renter's personal belongings from named perils
Explanation: Renter’s contents broad form (HO-4) provides coverage for a renter’s personal property from specific perils listed in the policy, rather than insuring the dwelling itself.
Question 13
What does “replacement-cost requirement” in insurance policies mean?
a) A home must be insured for its original purchase price
b) A home must be insured for 80% to 100% of its replacement value to be fully covered
c) Insurance will cover any amount of damage regardless of the policy limits
d) A home must be insured for its market value
Answer: b) A home must be insured for 80% to 100% of its replacement value to be fully covered
Explanation: The replacement-cost requirement ensures that a home is insured for at least 80% to 100% of the cost to replace it, so that any losses are fully covered.
Question 14
What are “subrogation rights” in insurance?
a) The right of the insured to recover losses directly from the negligent party
b) The right of the insurer to sue a third party to recover claims paid
c) The right of the insurer to cancel a policy at any time
d) The right of the insured to demand a higher payout from the insurer
Answer: b) The right of the insurer to sue a third party to recover claims paid
Explanation: Subrogation rights allow an insurer to take legal action against a third party responsible for causing a loss after the insurer has paid the insured's claim.
Question 15
What is “umbrella liability insurance”?
a) Insurance that covers losses to personal property
b) Catastrophic liability insurance that covers losses exceeding the limits of underlying policies
c) Insurance that protects against property damage only
d) A policy that covers minor liabilities such as parking tickets
Answer: b) Catastrophic liability insurance that covers losses exceeding the limits of underlying policies
Explanation: Umbrella liability insurance provides additional liability coverage that kicks in when the limits of other policies, such as homeowner's or auto insurance, are exceeded.
Question 16
What is the “individual mandate” under the Affordable Care Act?
a) All individuals must purchase health insurance or pay a tax penalty
b) Employers must provide health insurance to their employees
c) Individuals can choose not to have health insurance without consequence
d) Only individuals with pre-existing conditions must buy insurance
Answer: a) All individuals must purchase health insurance or pay a tax penalty
Explanation: The individual mandate under the Affordable Care Act requires all Americans to have health insurance or face a tax penalty, although this penalty has since been removed.
Question 17
What is the purpose of “modified adjusted gross income” (MAGI) in the Affordable Care Act?
a) To determine eligibility for health care subsidies
b) To calculate income tax refunds
c) To assess penalties for not paying health insurance premiums
d) To set the maximum interest rate on health care loans
Answer: a) To determine eligibility for health care subsidies
Explanation: MAGI is used under the Affordable Care Act to calculate an individual’s eligibility for health care subsidies, which can lower the cost of premiums or out-of-pocket expenses.
Question 18
What does a “health insurance exchange” (HIX) do?
a) It allows individuals to trade health insurance plans
b) It provides a marketplace for individuals to purchase health insurance plans
c) It is a federal program that distributes free health insurance
d) It helps employers determine employee benefits
Answer: b) It provides a marketplace for individuals to purchase health insurance plans
Explanation: A health insurance exchange is a marketplace where individuals and small businesses can compare and purchase health insurance plans under the Affordable Care Act.
Question 19
What are “essential health benefits” under the Affordable Care Act?
a) A list of mandatory benefits that all health insurance plans must offer
b) A set of optional benefits that insurance companies can choose to provide
c) Health benefits that apply only to Medicare recipients
d) A group of benefits only available to children
Answer: a) A list of mandatory benefits that all health insurance plans must offer
Explanation: Essential health benefits are a set of ten categories of services that health insurance plans must cover, such as emergency services, prescription drugs, and maternity care.
Question 20
What is a “fee-for-service” or “indemnity” health insurance plan?
a) A plan where you pay a fixed fee for any medical services used
b) A plan where you pay upfront and get reimbursed after submitting a claim
c) A plan that covers only emergency services
d) A plan where you pay no premiums but cover all medical expenses out of pocket
Answer: b) A plan where you pay upfront and get reimbursed after submitting a claim
Explanation: A fee-for-service or indemnity plan allows you to pay for services upfront and then submit a claim to the insurer for reimbursement based on the services provided.
