DECA Finance Fundamentals 3 — Questions and Answers
Question 1: Which type of account typically earns the highest interest rate?
- Checking account
- Savings account
- Certificate of deposit (CD) (Correct answer)
- Demand deposit account
Correct answer: Certificate of deposit (CD)
CDs generally offer higher interest rates than checking or savings accounts because funds are locked in for a fixed term.
Question 2: What is 'working capital'?
- Total assets minus total liabilities
- Current assets minus current liabilities (Correct answer)
- Long-term assets minus long-term debt
- Net income plus depreciation
Correct answer: Current assets minus current liabilities
Working capital = current assets − current liabilities, measuring short-term operational liquidity.
Question 3: A stock paying a $2 annual dividend on a $40 share price has a dividend yield of:
- 2%
- 5% (Correct answer)
- 20%
- 0.5%
Correct answer: 5%
Dividend yield = annual dividend ÷ stock price = $2 ÷ $40 = 5%.
Question 4: Which financing option involves selling ownership stakes in a company?
- Debt financing
- Equity financing (Correct answer)
- Trade credit
- Lease financing
Correct answer: Equity financing
Equity financing raises capital by issuing shares, giving investors partial ownership of the company.
Question 5: What does a negative net income indicate about a business?
- The business has no debt
- The business operated at a loss (Correct answer)
- The business has high liquidity
- The business has strong cash flow
Correct answer: The business operated at a loss
Negative net income means total expenses exceeded total revenues, resulting in a net loss for the period.
Question 6: The process of spreading an intangible asset's cost over its useful life is called:
- Depreciation
- Amortization (Correct answer)
- Depletion
- Capitalization
Correct answer: Amortization
Amortization systematically allocates the cost of intangible assets (like patents) over their useful lives.
Question 7: Which of the following is an example of a variable cost?
- Monthly rent
- Annual insurance premium
- Raw materials per unit produced (Correct answer)
- Executive salaries
Correct answer: Raw materials per unit produced
Variable costs change directly with production volume; raw materials cost more as more units are manufactured.
DECA Finance Fundamentals 3
Which type of account typically earns the highest interest rate?