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  1. You put $100 into savings, then earn interest on earlier interest too. That is:
ARevenue
BSimple budgeting
CCompound interest
DLiability


  1. A used car is worth $12,000 and you owe $8,000 on its loan. Your equity is:

Verified Answer :

  • Identifying compound interest as the term for interest earned on both principal and accumulated interest.
  • Calculating equity for the car using the formula: \(\text{Equity} = \text{Asset Value} - \text{Liability}\).
  • Substituting \(\$12,000\) and \(\$8,000\) into the formula gives \(\$12,000 - \$8,000 = \$4,000\).
  • Final answers: 9) C, 10) \(\boxed{\$4,000}\).

Explanation

  1. Analysis and Calculation of Financial Concepts

In personal finance, it is important to understand key concepts like interest and equity.
For question 9, we are looking for the financial term describing interest earned on both the initial principal and the accumulated interest from previous periods.

  • Revenue refers to the total amount of money brought in by a company's operations.
  • Simple budgeting refers to the process of creating a plan for spending and saving money.
  • Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
  • Liability refers to an obligation that an individual or business owes to another party, typically a debt.

Therefore, the correct term is compound interest.

For question 10, we are asked to calculate the equity in a car. Equity is defined as the difference between the market value of an asset and the liabilities (debt) owed against that asset.
The formula for equity is:
\[\text{Equity} = \text{Asset Value} - \text{Liability}\]
Given the asset value of the car is \(\$12,000\) and the outstanding loan (liability) is \(\$8,000\), we calculate the equity as follows:
\[\text{Equity} = \$12,000 - \$8,000 = \$4,000\]
Thus, your equity in the car is \(\$4,000\).

Examples

Understanding these concepts is essential for managing personal finances. For example, when you invest money in a savings account that pays compound interest, your balance grows faster over time because you earn "interest on interest." Similarly, understanding equity is crucial when financing a vehicle; as you pay down the loan balance, your equity increases, representing a larger portion of the car that you truly own. These concepts are foundational for making informed decisions about saving, borrowing, and wealth building.

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