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PFL Unit 3

Vocabulary for PFL Unit 3

TermDefinition
Risk A potential loss of assets or earning potential.
Emergency fund Money that is set aside to be used in an urgent situation such as loss of a job, an illness, or a major expense.
Liquid account An account that can be easily converted into cash, such as a savings, money market, or checking account.
Interest The cost of borrowing money, expressed as a percentage of the principal; in investing, it is the money your money earns.
Maturity value When an investment, such as a CD, has reached its highest value, which is at the end of its term.
Financial intermediary A business, such as a bank or credit union, that acts as a middleman between lenders and borrowers.
Car loan Borrowed money used to purchase an automobile; usually the money is paid back in two to six years, with interest.
Collateral Something provided to a lender as a guarantee of repayment which is forfeited in the event of default (nonpayment).
Lien The right the lender has to repossess the car if the borrower cannot pay back the loan.
Car lease The use of a car for a fixed period of time at an agreed amount of money; the car must be returned or purchased at the end of the term.
Down payment An initial amount paid at the time of purchase of an expense good or service; typically only represents a percentage of the full purchase price while the rest is paid using credit.
Depreciation The lost value of a product (i.e. car) over time due to age, wear, and tear.
Finance charges Fees that are paid as a cost of borrowing. This includes interest payments, late charges, account maintenance fees, and loan origination fees, among others.
Annual percentage rate (APR) The rate of interest charged on borrowed money for an entire year, which includes the effects of fees and other added costs.
Tax, title, and license (TT&L) Local and state sales taxes, fees to obtain the car title, and license fees to register the car with the state.
Contract A legal agreement between two parties that is enforceable by law.
Truth in Lending Act A federal regulation that protects consumers by requiring lenders to provide standardized loan cost information on contracts.
Investment Anything you acquire for future income or benefit.
Principal The amount of money invested, loaned, or borrowed.
Compound interest Interest paid on previously earned interest as well as on the original deposit or investment.
Simple interest Interest calculated on the principal, or original, amount of a loan.
Investing Using money to purchase something, such as stocks and bonds, that you
Return on investment (ROI) A measure of the amount of gain or loss an investment brings the investor. expect to provide you with a profit in the future.
Certificate of Deposit (CD) A certificate purchased at a bank; accessing the funds early will result in a penalty but at the maturity date, the purchaser receives the purchase amount, plus interest.
Bond Lending money to the government or a corporation for a specific time period; at maturity, the government or corporation pays back the purchase amount, plus interest.
Mutual funds A type of investment that enables investors to pool their money together into one professionally managed investment consisting of stocks and/or bonds.
Money market account (MMA) A savings account that requires a higher balance than normal savings accounts, allows limited withdrawals, but earns higher interest rates.
Real estate investing An investor purchases a home to rent to others; the owners receives rent payments and may also sell the home for a profit later.
Stocks An ownership share in a company that you can sell later and may increase in value as the company grows.
Dividend Earnings from a company distributed to its shareholders.
401K Plan A retirement savings plan sponsored by an employer allowing workers to save and invest pre-tax dollars from their paycheck; employers often make contributions to their employees' plans.
Individual Retirement Account (IRA) A type of retirement savings account that allows individuals to direct pretax income towards investments that can grow tax-deferred; no capital gains or dividend income is taxed until it is withdrawn.
Created by: joann.roe