AP Business with Personal Finance Unit 5 flashcards: Personal Goals, Budgeting, and Investing

Question 1

Income tax

Accepted Answer

A tax on what you earn. Employers withhold part of each paycheck, and you file a yearly return to pay any balance or get a refund.

Question 2

Payroll taxes

Accepted Answer

Taxes on wages that fund Social Security and Medicare. In 2026 employees pay 6.2% and 1.45%, and employers pay a matching share.

Question 3

Sales tax

Accepted Answer

A tax on the price of an item, collected by the seller at checkout and sent to the government.

Question 4

Property tax

Accepted Answer

A tax based on the value of property such as a house, land or, in some places, a car.

Question 5

Capital gains tax

Accepted Answer

Tax on profit from selling an asset for more than you paid. It's reported on your income tax return and usually taxed at a lower rate.

Question 6

Progressive tax

Accepted Answer

A tax where higher rates apply to higher slices of income. Each rate applies only to the income inside its bracket.

Question 7

Tax deduction

Accepted Answer

An amount subtracted from taxable income, like retirement contributions or charitable gifts. It saves your top tax rate times the deduction.

Question 8

Tax credit

Accepted Answer

An amount subtracted directly from the tax you owe, such as a child or education credit. A $1,000 credit cuts your tax by $1,000.

Question 9

Gross pay vs. net pay

Accepted Answer

Gross pay is everything you earn in a pay period. Net pay is what's left after taxes and other deductions, and it's what you budget with.

Question 10

Mandatory vs. voluntary deductions

Accepted Answer

Mandatory deductions are required by law, like income and payroll taxes. Voluntary ones are benefits you choose, like retirement savings or health insurance.

Question 11

Pretax deduction

Accepted Answer

Money taken from your pay before income tax is figured, such as some retirement contributions. It lowers your taxable income.

Question 12

Tax refund

Accepted Answer

Money returned to you when more tax was withheld during the year than you actually owed.

Question 13

Insurable risk

Accepted Answer

A chance loss, like an accident, that's measurable and predictable enough for an insurer to estimate its cost and likelihood.

Question 14

Personal, property and liability risk

Accepted Answer

Personal risk is to your health, property risk is to your things, and liability risk is harm you cause to other people or their property.

Question 15

Premium

Accepted Answer

What you pay, monthly or yearly, to keep an insurance policy.

Question 16

Deductible

Accepted Answer

What you pay toward a covered loss before the insurer pays. A higher deductible usually means a lower premium.

Question 17

Insurance claim

Accepted Answer

A request to your insurer for payment after a covered loss.

Question 18

Renter's insurance

Accepted Answer

Insurance that covers a renter's belongings and personal liability. The building itself is the landlord's to insure.

Question 19

Life insurance

Accepted Answer

Insurance that pays money to chosen beneficiaries when the insured person dies, often to replace income for dependents.

Question 20

Insurance fraud

Accepted Answer

Lying to an insurer or filing false claims, or an insurance seller misrepresenting a policy. It's a crime.

Question 21

Phishing

Accepted Answer

A fake message or call that pretends to be from a trusted source to trick you into sharing passwords or account numbers.

Question 22

Identity theft

Accepted Answer

When someone uses your personal information, like your Social Security number, to open accounts or borrow in your name.

Question 23

Credit freeze

Accepted Answer

A block on your credit report so most lenders can't see it, which stops new accounts in your name. It's free under federal law.

Question 24

Predatory lending

Accepted Answer

Unfair lending that uses deception or high pressure. Compare terms, take your time and talk to a nonprofit credit counselor before signing.

Question 25

Compounding

Accepted Answer

Earning returns on your past returns, not just on what you put in. Example: $1,000 at 5% a year grows to about $1,629 in 10 years and $4,322 in 30.

Question 26

Time horizon

Accepted Answer

How long until you need your money. A long horizon allows riskier assets; a short one calls for safer assets.

Question 27

Investment risk tolerance

Accepted Answer

How much possible loss an investor can accept for a chance at higher returns. It shapes the mix of safe and risky assets someone holds.

Question 28

Diversification

Accepted Answer

Spreading money across many investments so one bad result hurts less. It lowers risk but can't remove it.

Question 29

Mutual fund

Accepted Answer

An investment that pools many people's money to buy stocks and/or bonds, giving each investor a share of a diversified mix.

Question 30

Inflation-adjusted (real) return

Accepted Answer

Your return after accounting for inflation. Example: a 6% return with 3% inflation is a real return of about 3%.

Question 31

Investment fees

Accepted Answer

Transaction, management and advice fees. They lower your return, and their cost compounds over time.

Question 32

Mortgage

Accepted Answer

A loan to buy a home, secured by the home. The payment depends on the amount borrowed, the term and a fixed or adjustable rate.

Question 33

Grants and scholarships

Accepted Answer

College aid that doesn't need to be repaid. Grants are often based on need; scholarships are often based on merit or other criteria.

Question 34

Employer retirement match

Accepted Answer

Money an employer adds to your retirement plan when you contribute. Example: a 50% match on $3,000 adds $1,500.

Question 35

Overconfidence and loss aversion

Accepted Answer

Two investing biases. Overconfidence leads to needless risk; loss aversion leads people to sell too soon at a loss.

AP® Business with Personal Finance Unit 5 flashcardsPersonal Goals, Budgeting, and Investing

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