FiCEP Finance 2

Question 1

What is the time value of money and how does it affect counseling recommendations?

Accepted Answer

A dollar today is worth more than a dollar in the future because of its earning potential

Answer

Money has the same value regardless of when received

Answer

It only applies to large sums

Answer

Only relevant for business finance

Question 2

What is the difference between gross income and net income for budgeting?

Accepted Answer

Gross is total earnings before deductions; net is take-home pay and is the correct basis for budgeting

Answer

They are the same amount

Answer

Gross should always be used for budgeting

Answer

Net includes bonus payments only

Question 3

What is liquidity in personal finance and why does it matter?

Accepted Answer

It measures how quickly an asset can be converted to cash without significant loss of value

Answer

It refers to how much debt a person has

Answer

It only matters for businesses

Answer

All assets have the same liquidity

Question 4

What is the Rule of 72 and how can counselors use it?

Accepted Answer

A formula to estimate how many years for an investment to double: divide 72 by the annual rate

Answer

A rule requiring 72 months of savings

Answer

A tax code provision

Answer

A limit on accounts a person can have

Question 5

What are the three main personal financial statements a counselor might create with a client?

Accepted Answer

Balance sheet, income and expense statement, and spending plan

Answer

Resume, cover letter, references

Answer

Tax returns, credit reports, bank statements

Answer

Loan applications, insurance policies, wills

Question 6

What is the difference between simple interest and compound interest?

Accepted Answer

Simple interest is on principal only; compound interest is on principal plus accumulated interest

Answer

Simple interest earns more over time

Answer

They produce the same results

Answer

Compound interest only applies to savings