AP Business with Personal Finance — Cheatsheet
Formulas, exam-day tips, and key terms on one page.
How to get a 5
- When evaluating a financial decision, always consider the opportunity cost and the time value of money.
- Understand the difference between fixed, variable, and periodic expenses for budgeting.
- Remember that higher potential investment returns are always correlated with higher levels of risk.
- Know the five factors that impact a FICO credit score, especially payment history and amounts owed.
Key terms
Compound Interest — Interest calculated on the initial principal and also on the accumulated interest.
Rule of 72 — A quick formula to estimate the number of years required to double your investment (72 / interest rate).
Diversification — A risk management strategy that mixes a wide variety of investments within a portfolio.
FICO Score — A credit score created by the Fair Isaac Corporation, ranging from 300 to 850.
Liquidity — The ease with which an asset can be converted into cash without affecting its market price.
Asset vs. Liability — Asset: Something you own of value. Liability: A debt or financial obligation you owe.
Amortization — The process of spreading out a loan into a series of fixed payments over time.
Opportunity Cost — The loss of potential gain from other alternatives when one alternative is chosen.
Inflation — The general increase in prices and fall in the purchasing value of money.
Time Value of Money — The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
Roth vs. Traditional — Roth: Contributions are post-tax, withdrawals are tax-free. Traditional: Contributions are pre-tax, withdrawals are taxed.
Net Worth — The value of all assets minus the total of all liabilities.