MCVSD Business & Finance Fundamentals 2 — Questions and Answers
Question 1: What is 'gross income' in personal finance?
- Income after taxes and deductions
- Income before any taxes or deductions (Correct answer)
- Only investment income
- Employer benefits value
Correct answer: Income before any taxes or deductions
Gross income is the total income earned before any taxes, deductions, or withholdings are applied.
Question 2: Which financial concept describes spreading investments across different assets to reduce risk?
- Liquidity
- Diversification (Correct answer)
- Depreciation
- Inflation
Correct answer: Diversification
Diversification reduces financial risk by spreading investments across multiple asset types or sectors.
Question 3: What is the purpose of a W-2 form in the United States?
- To apply for a business loan
- To report annual wages and taxes withheld from employees (Correct answer)
- To file for unemployment benefits
- To register a new business
Correct answer: To report annual wages and taxes withheld from employees
A W-2 form reports an employee's annual wages and the amount of taxes withheld by their employer.
Question 4: In business, what does ROI stand for?
- Rate of Income
- Return on Investment (Correct answer)
- Revenue or Interest
- Ratio of Inflation
Correct answer: Return on Investment
ROI stands for Return on Investment, measuring the profitability of an investment relative to its cost.
Question 5: Which type of business structure offers personal liability protection to its owners while allowing pass-through taxation?
- Sole proprietorship
- General partnership
- Limited Liability Company (LLC) (Correct answer)
- C-Corporation
Correct answer: Limited Liability Company (LLC)
An LLC provides personal liability protection while allowing profits and losses to pass through to the owners' personal tax returns.
Question 6: What is compound interest?
- Interest earned only on the principal amount
- Interest earned on both the principal and previously accumulated interest (Correct answer)
- A fixed annual fee charged by banks
- Interest paid to creditors monthly
Correct answer: Interest earned on both the principal and previously accumulated interest
Compound interest is interest calculated on both the initial principal and the interest previously accumulated.
MCVSD Business & Finance Fundamentals 2
What is 'gross income' in personal finance?