Business: Personal & Corporate Finance Basics

What is a stock?

A security that represents ownership in a fraction of a corporation, entitling the owner to a proportion of the corporation's assets and profits.

What is a bond?

A fixed-income instrument that represents a loan made by an investor to a borrower, typically a corporation or government entity.

What is the 50/30/20 rule in budgeting?

A guideline where 50% of income goes to needs, 30% to wants, and 20% to savings or debt repayment.

What is the Rule of 72?

A simple formula used to estimate the number of years required to double an investment at a fixed annual rate of return (72 divided by the interest rate).

What is a balance sheet?

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.

What is an income statement?

A financial report that shows a company's revenues and expenses over a specific period, resulting in net income or loss.

What is the primary difference between a 401(k) and an IRA?

A 401(k) is an employer-sponsored retirement plan, while an IRA (Individual Retirement Account) is opened by an individual independently.

What does the Current Ratio measure?

A liquidity ratio that measures a company's ability to pay short-term obligations (due within one year) using its current assets.

What is compound interest?

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.

What is diversification in investing?

The strategy of spreading investments across various financial instruments, industries, and other categories to reduce risk.