FBLA Intro to Financial Math #2

Annual Interest Rate

The percent of the principal in a bank account earned as interest based on one year. Example: If you have $1,000 in a savings account with a 2% annual interest rate, you'll earn $20 in interest after one year.

Annual Percentage Rate (APR)

An index showing the cost of borrowing money on a yearly basis, expressed as a percent. Example: A credit card has an APR of 18%, meaning you'll pay $18 in interest for every $100 borrowed over a year.

Annuity

An equal amount of money deposited into an account at equal periods of time. Example: If you deposit $200 every month into a retirement account, that's an annuity.

Base Figure

The dollar amounts from an earlier income statement used for comparison. Example: If last year's revenue was $50,000, that serves as the base figure to compare this year's revenue.

Base Price

The price of a vehicle's engine, chassis, and any other standard equipment for a particular model. Example: The base price for a certain car model might be $20,000 before any additional features.

Budget

A plan for using money in a way that best meets your wants and needs. Example: A monthly budget allocates $500 for groceries, $300 for rent, and $200 for entertainment.

Commission

An amount of money paid to an employee for selling a product or service. Example: A real estate agent might earn a 5% commission on the sale of a home.

Cost

The actual amount paid for a product, including expenses like freight and taxes. Example: If a laptop costs $800 plus $50 in taxes, the total cost is $850.

Deductible

An amount an insured person must pay before the insurance company pays anything. Example: If your health insurance has a $500 deductible, you must pay that amount before the insurer covers your medical expenses.

Discount

The difference between the face value and the maturity value of a bond or Treasury bill. Example: A bond with a face value of $1,000 sold for $950 has a $50 discount.

Down Payment

A portion of the cash price of an item that must be paid before financing the rest on credit. Example: When buying a house, a buyer might make a 20% down payment of $40,000 on a $200,000 home.

Face Value

The amount of money printed on a bond or Treasury bill received on its maturity date. Example: A Treasury bill may have a face value of $1,000, which you receive upon maturity.

Factor

A company's present share of the market for a product or service. Example: A smartphone manufacturer with 25% market factor indicates they sell one in four smartphones.

Fixed Costs

Production or vehicle costs that remain constant regardless of production or usage levels. Example: A factory pays $5,000 monthly rent, which is a fixed cost.

Fixed Expenses

Regular monthly expenses that do not vary, such as rent and car payments. Example: A fixed expense could be a car payment of $300 each month.

Gross Domestic Product (GDP)

The total value of goods and services produced in a country in a given year. Example: If a country's GDP is $1 trillion, it represents the total value of all economic output for that year.

Inflation

A general increase in the cost of goods and services. Example: If the price of bread rises from $2 to $2.20, that reflects a 10% inflation rate for that item.

Interest

The amount paid for the use of a lender's money. Example: If you take out a loan of $1,000 at 5% interest, you'll pay $50 in interest for one year.

Inventory

The number of each item a business has in stock. Example: A retailer might have 500 pairs of shoes in inventory at any given time.

Invoice

A bill listing the quantities and costs of items purchased. Example: A contractor sends an invoice for $2,500 for the work completed, detailing materials and labor.

Lease

An agreement for the use of property, such as a building or vehicle, usually on an annual basis. Example: A business might lease office space for $2,000 per month.

Living Expenses

Routine expenses that vary from month to month, such as food and utilities. Example: Monthly living expenses could include $300 for groceries and $150 for electricity.

Loss

The amount of money lost on an investment, such as stocks. Example: If you buy stock for $1,000 and sell it for $800, you incur a $200 loss.

Markdown

The difference between the regular selling price of an item and its sale price. Example: An item originally priced at $50 with a $10 markdown sells for $40.

Market

The total number of people who might purchase a type of product. Example: The market for electric cars includes environmentally conscious consumers and tech enthusiasts.

Markup

The difference between the cost of a product and its selling price when the selling price is higher. Example: If a store buys a shirt for $20 and sells it for $30, the markup is $10.

Maturity Value

The total amount that must be repaid on a loan, including the principal and interest. Example: A loan of $1,000 with $200 interest has a maturity value of $1,200.

Merge

To combine one business with another to form a new business. Example: Company A and Company B might merge to create a larger corporation with more resources.

Net Income

Money left over after expenses have been deducted from gross profits. Example: If a business earns $100,000 and has $70,000 in expenses, the net income is $30,000.

Net Price

The price actually paid for a discount item. Example: If a $100 item has a 20% discount, the net price paid is $80.

Net Profit

Any money left after expenses have been deducted from gross profits. Example: If a company has a gross profit of $200,000 and expenses of $150,000, the net profit is $50,000.

Net Worth

The amount by which assets exceed liabilities. Example: If you own assets worth $300,000 and have liabilities of $100,000, your net worth is $200,000.

Ordinary Annuity

An account in which equal deposits are made at the end of each interest period. Example: Contributing $500 at the end of each year into an ordinary annuity.

Per Capita GDP

The GDP of a country distributed over its population. Example: If a country has a GDP of $1 trillion and a population of 50 million, the per capita GDP is $20,000.

Personal Identification Number (PIN)

A personal number on a bankcard that provides electronic access to a bank account. Example: Entering your 4-digit PIN at an ATM to withdraw cash.

Premium

The amount paid to an insurance company for insurance. Example: If your health insurance premium is $300 per month, that's what you pay to maintain coverage.

Prime Cost

The total of direct material and direct labor costs used to make a product. Example: If it costs $10 in materials and $5 in labor to produce a widget, the prime cost is $15.

Principal

The amount borrowed on a loan or deposited into an account. Example: If you take a loan for $5,000, that amount is the principal.

Profit

Money made on a product or investment over the amount spent. Example: If you sell a bicycle for $200 that cost you $150, your profit is $50.

Quality Control

Inspecting mass-produced items for defects. Example: A factory may have a quality control team to check for defects in every batch of products.

Real GDP

GDP adjusted to account for inflation. Example: If nominal GDP is $1 trillion but inflation is 2%, real GDP would be adjusted to reflect purchasing power.

Salary

A fixed amount of money earned regularly. Example: An employee earns a salary of $60,000 per year.

Sale Price

The regular selling price minus any discounts. Example: An item with a regular price of $80, discounted by $20, has a sale price of $60.

Sales Tax

A tax charged by states on the selling price of goods or services. Example: If an item costs $100 and the sales tax is 8%, the total price paid is $108.

Selling Price

The actual price a product sells for in a store. Example: A book may have a selling price of $15.

Stocks

Shares of ownership in a corporation. Example: Buying shares of Apple Inc. gives you ownership in that company.

Tax Rate

The percent of income, sales, or property value collected in taxes. Example: A state may have a tax rate of 6% on sales.

Utility Costs

Costs of public services like electricity, water, and gas. Example: A household may pay $150 for electricity and $60 for water each month.

Variable Costs

Costs of producing a product that vary with production levels. Example: The cost of raw materials increases as more products are manufactured.

Yield

The rate of return on an investment after a certain period. Example: If you invest $1,000 and earn $100 in interest, your yield is 10%.

Reward

Incentives offered by credit cards, such as cash back. Example: A credit card might offer 2% cash back on all purchases.

Debit Card

A card linked directly to a bank account with no credit line.

Cash Advance

A cash withdrawal from a credit card at an ATM, typically with high interest. Example: Taking a $200 cash advance from a credit card may incur high fees and interest.

Net Amount of Sale (Net Proceeds)

The cash generated by sales on the day of sale. Example: Selling a car for $15,000 with no outstanding liens results in net proceeds of $15,000.

Nominal Account

An account that resets to zero at the end of the accounting year. Example: Revenue accounts are nominal accounts that are closed out each year.

Bank Fractional Number

A number that identifies a bank, including city/state and institution identifier. Example: The fractional number on a check helps ensure it's processed through the correct bank.

Capital

The excess of a company's assets over its liabilities. Example: A business with $500,000 in assets and $300,000 in liabilities has $200,000 in capital.

Variance

A measure of the spread of outcomes in statistics or probability. Example: If test scores have a variance of 25, it indicates a wider spread of scores.

Mileage

Distances measured in miles. Example: A car might get 30 miles per gallon of fuel.

Linear Function

A function that increases at a fixed rate, often represented as y=mx+b. Example: If a salary increases by $2,000 each year, that's a linear function of time.

Exponential Function

A function that grows by multiplication, often represented as 𝑦=𝑒𝑥. Example: The population of a city might grow exponentially if it increases by 5% each year.

Exponential Growth

When an exponential graph shows increasing values. Example: The number of users on a social media platform might grow exponentially as more people join.

Exponential Decay

When an exponential graph shows decreasing values. Example: A radioactive substance decaying over time exhibits exponential decay.

ABA Number

A 9-digit code identifying a specific financial institution. Example: The ABA number helps route checks to the correct bank.

Bank Statement

A record summarizing transactions in an account over a certain period. Example: Your monthly bank statement lists all deposits, withdrawals, and the ending balance.

Cancelled Check

A check that has cleared and serves as proof of payment. Example: A cancelled check indicates that your payment for rent has been processed.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest. Example: If you invest $1,000 at 5% compounded annually, after one year you'll have $1,050.

Cost of Goods Sold

The total cost of producing goods sold by a company. Example: If a bakery spends $500 on ingredients to sell $2,000 worth of bread, the cost of goods sold is $500.

Current Assets

Assets that can quickly be converted to cash. Example: Cash and inventory are current assets that can be liquidated easily.

Demand Deposit

Funds that can be withdrawn without prior notice. Example: A checking account is a demand deposit account.

Bank Draft

A guaranteed payment from the issuing bank. Example: A bank draft is often used for real estate transactions to ensure secure payment.

Floating a Check

Writing a check without sufficient funds, hoping to cover it later. Example: If you write a check for $100 knowing you have $50 in your account, you're floating a check.

Installment Loans

Loans repaid over time with fixed payments. Example: A car loan that requires monthly payments over five years is an installment loan.

Liabilities

Financial debts or obligations. Example: A mortgage and student loans are examples of liabilities.

Liquidity

The ease of converting assets to cash. Example: Cash is the most liquid asset, while real estate is less liquid.

Money Order

A prepaid document used for secure payments. Example: A money order is often used for sending money through the mail safely.

Payor/Maker

The person liable for a payment on a check. Example: The person who writes a check is the payor or maker.

Quotient

The ability to manage wealth through understanding money. Example: Someone with a high financial quotient understands budgeting, investing, and saving.

Rational Number

A number formed by dividing two integers. Example: The number 1/2 and 3 are rational numbers, while pi is not.

Reconciliation

Ensuring an account balance is correct by matching transactions. Example: Monthly bank reconciliation helps confirm that your records match the bank statement.

Stop Payment Order

A request to cancel a check that hasn't been processed yet. Example: If you realize you made a mistake on a check, you can issue a stop payment order with your bank.

Operating Expenses

Costs required for the day-to-day functioning of a business. Example: Insurance, supplies, attorney fees, payroll, rent, and repairs contribute to operating expenses.

Financial Statements

Reports summarizing the financial performance and position of a business.

Income Statement

Shows revenues and expenses to illustrate profit or loss over a specific period, like a quarterly report.

Balance Sheet

Lists assets and liabilities at a specific date, showing a company's net worth.

Cash Flow Statement

Details cash movement from operating, investing, and financing activities over time.

Statement of Changes in Equity

Reflects changes in ownership equity from transactions like retained earnings or dividends.

Current Ratio

A liquidity measure calculated as current assets divided by current liabilities. Example: A company with $200,000 in current assets and $100,000 in current liabilities has a current ratio of 2:1.

Gross Profit

The revenue remaining after subtracting the cost of goods sold (COGS). Example: If a business generates $500,000 in revenue and incurs $300,000 in COGS, the gross profit is $200,000.

Cashier's Check

A check guaranteed by a bank, requiring the buyer to prepay the amount. Example: When purchasing a car, you may use a cashier's check for the total amount to ensure it clears.

Certified Check

A check verified by the bank as legitimate and backed by sufficient funds in the payer's account. Example: When buying a home, a certified check is often used to secure the transaction.

Endorsements (For Checks)

Signatures or instructions on the back of a check that authorize its transfer or limit its use.

Blank Endorsement

Simply signing the check allows anyone to cash it.

Restrictive Endorsement

Writing 'For Deposit Only' limits the check to your account.

Special Endorsement

Signing over the check to another person, e.g., 'Pay to the order of John Smith.'

Validity of Check

The period during which a check can be cashed. Example: A check is valid for 180 days after it is written.

Auto Insurance

Insurance that protects against financial loss from vehicle-related incidents, with costs influenced by various factors. Example: A young driver might pay higher premiums due to age, driving history, and the type of car.

Employee Benefits

Non-wage compensation provided to employees in addition to their normal wages. Example: Health care insurance, paid leave, retirement plans, and workers' compensation are common employee benefits.

Types of Credit Cards

Various credit cards designed for different financial needs.

Rewards Credit Cards

Offer points or cash back for purchases, suitable for those who pay balances in full.