Exam 1 (Ch. 1,2,& 3) Notes Personal Finance

Which of the following goals would be the easiest to implement and measure its accomplishment?

"Save $100 a month to create a $ 4,000 emergency fund."

A savings amount of $5,000 on deposit for 8 years at 4 percent interest (compounded annually) would earn about

$1,840 ($5,000 x 4% = $200 a yr. - 200 x 8 = $1,600 but is compounded to $ 1,840)

Annual earnings on a $4,000 savings acct. earning 4.02% would be about

$160

A family with $45,000 in assets and $22,000 of liabilities would have a net worth of

$23,000.

A family with $50,000 in assets and $22,000 of liabilities would have a net worth of

$28,000 (Assets - Liabilities = Net Worth)

George Washburn had earnings from his salary of $34,000, interest on savings of $800, a contribution to an individual retirement account of $1,500, and dividends from mutual funds of $600. George's adjusted income (AGI) would be

$33,900

The future value of $1,000 deposited a year for 5 yrears earning 4% would be approximately

$5,400

Money management refers to

. Day-to-day financial activities

Money received in the form of dividends or interest is ____________ income.

. Investment

With an inflation rate of 6 percent, prices would double in about ___________ years.

12 (Rule of 72) 72 / 6 = 12

If a $1,000 investment increases to $1,040 in a year, the rate (%) of return is ____ percent.

4.0% (Principal x Rate x Time = Answer) 1000 x .04 x 1 = 4.0%

With an inflation rate of 9%, prices would double in about __________ years?

8

If a $1,000 investment increases to $1,080 in a year, the rate of return is _________ percent.

8.00

The Hernandez family budgets $420 a month for food. Last month they spent $413, which creates

A budget surplus of $7

Which of the following presents a summary of income and outflows for a period of time?

A cash flow statement

Which type of audit is the leasdt complicated for taxpayers?

A correspondance audit.

Which type of audit is the most complicated for taxpayers?

A field audit

Which of the following would be considered a long-term liability?

A mortgage

In a recent month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950, resulting

A surplus of $150

Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks

A time frame

The major function of a financial plan is to

Achieve financial goals

The stages that an individual goes through based on age, financial needs, and family situation is called the

Adult life cycle

A major activity in the planning component of financial planning is

Allocating current resources for spending.

A deduction from adjusted gross income for yourself, your spouse, and/or qualified dependents is

An exemption

The first step of the financial planning process is to

Analyze your current personal and financial situation

The amount of interest is determined by multiplying the amount in savings by the

Annual interest rate and the time period

Items with a monetary worth are referred to as

Assets

The use of legitimate methods to reduce one's taxes is tax

Avoidance

The use of legitimate methods to reduce one's taxes is tax ____________.

Avoidance

Which of the following are considered to be personal financial statements?

Balance sheet and cash flow statement

The difference between the amount budgeted and the actual amount is called a

Budget variance

Which of the following ia an example of a tax credit?

Child and dependent care expenses.

Future value calculations are also referred to as

Compounding (Present value calculations)

A tax ____________ is an amount subtracted directly from the amount of taxes owed.

Credit

A cash flow statement reports a person's or a family's

Current income and payments

Ben Chase needs to pay off some of his debts over the next few months. Which item on his balance sheet would help him decide what amounts are due in the near future?

Current liabilities

Liabilities are amounts representing

Debts

If a family planned to spend $470 for food during March but spent $500, this difference would be referred to as a

Deficit

A question associated with the saving component of financial planning is

Do you have an adequate emergency fund?

Money received by an individual for personal effort is ____________ income.

Earned

The study of how wealth is created and distributed is

Economics

Changes in income, values, and family situation make it necessary to

Evaluate and revise your actions

Which type of tax is imposed on specific goods and services at the time of purchase?

Excise

A financial plan is another name for a budget.

False

A personal balance sheet reports your income and expenses.

False

Developing financial goals is the first step in the financial planning process.

False

Financial records that may need to be referred to on a regular basis should be kept in a safe-deposit box.

False

Inflation inccreases yhr buying poer of money.

False

Tax avoidance refers to illegal actions to reduce one's taxes.

False

Taxable income is the total earnings of a person.

False

Taxes are only considered in financial planning activities in April.

False

When prices are increasing at a rate of 3%, the cost of products would double in a about twelve years.

False

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a

Financial plan

Ed Bostrom wants to reduce his fixed expenses. What action would be appropriate?

Find a place to live with a lower rent

The payment items that should be budgeted first are

Fixed expenses

If a person deposited $50 a month for 6 years earning 8 percent, this would involve what type of computation?

Future value of a series of deposits

The main purpose of taxes is to

Generate revenue for funding government programs

Reduced funds available for investment in our economy could result from

Higher imports than exports (Crowding out)

An example of a long-term goal for a young couple may be

Income for retirement

The time value of money refers to

Increases in an amount of money as a result of interest

____________ risk refers to the danger of lost buying power during times of rising prices.

Inflation

An individual retirement account is an example of a(n) ____________ asset.

Investment

Liquid assets refer to

Items of value that are easily converted to cash

A personal balance sheet presents

Items owned and amounts owed

The ability to convert financial resources into usable cash with ease is referred to as

Liquidity

As Bobbie White plans to set aside funds for her young children's college education, she is setting a(n) ____________ goal.

Long-term.

The "head of household" filing status is for people who are

Not living with a spouse and have dependent children

Attempts to increase income are part of the ____________ component of financial planning.

Obtaining

Which type of computation would a person use to determine current value of a desired amount for the future?

Present value of a single amount

Personal finance planning has the main goal of

Putting money to work and living within your means

A taxpyer whose spouse recently died is most likely to use the _________ filing status.

Qualifying widow or widower

An expense that would be included in the itemized deductions of a taxpayer is

Real estate property taxes

An exemption affects a person's tax situation by

Reducing the taxpayer's taxable income

The uncertainty associated with decision making is referred to as

Risk

Which of the following is an example of opportunity cost?

Saving money instead of taking a vacation.

An example of a personal and employment document is a

Social Security card

A person's net worth is computed by

Subtracting total liabilities from total assets

The main economic influence that determines prices is

Supply and demand

Total earnings of a person less deductions for taxes and other items is called

Take-home pay

An IRA, Keogh plan, and 401(k) plan are examples of

Tax-deferred retirement plans

Opportunity cost refers to

The trade-off of a decision

A person's filing status is affected by marital status and dependants.

True

A person's lifestyle is a reflection of his or her values, goals, career, and family situation.

True

A person's net worth is the difference between the value of the items owned and the amounts owed to others.

True

A tax credit is an amount subtracted directly from the amount of taxes owed.

True

Capital gains refer to profits from the sale of investments.

True

Household size is a major influence on personal financial planning decisions.

True

Opportunity costs refer to what a person gives up when making a decision.

True

The total of a person's itemized deductions is determined on Schedule A of Form 1040.

True

When one money management decision is selected, something else must be given up.

True

Payments that vary from month to month are ____________ expenses

Variable

Current liabilities differ from long-term liabilities based on

When the debt is due

A budget deficit would result when a person's or family's

actual expenses are greater than planned expenses.

Which of the following would be deducted from gross income to obtain adjusted gross income?

alimony payments

If you put $1,000 in a savings account and make no further deposits, what type of calculation would provide you with the value of the account in 20 years?

future value of a single amount

Taxable income is used to compute a person's ___________ ______

income tax

____________ ____________ are expenses that a taxpayer is allowed to deduct from adjusted gross income.

itemized deductions

The ______ _______ property tax is based on the value of land and buildings.

real estate

A person's net worth would increase as a result of

reduced amounts owed to others.

An exemption affects a person's tax situation by

reducing the taxpayer's taxable income