FIN Final Practice 1

Catherine Jones has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased a mutual fund worth $4,500 and she has a retirement account worth $62,300. What is the value of her investment assets?

$66,800 (Investment assets, in this case, would include mutual fund and retirement account assets; $4,500 + $62,300 = $66,800)

You purchase 10 shares of stock for $20 per share and hold the stock for 5 years. The company pays you $1.00 per share of stock in dividends per year for the stock. At the end of the five year period you sell the stock for $14 per share. What is your average annual rate of return for this investment (go out to 2 decimal places)?_

?

You purchase a bond for $1,200 dollars which pays you $120 per year in interest and hold the bond for ten years, at which time you sell the bond for $1,100. What is the dollar amount of your return for this investment? _______

?

The process of spreading assets among several different investments to reduce risk.

Asset Allocation

Common long-term liabilities include:

Auto loans.

The increase and decrease in a nation's economic activity.

Business Cycle

Jeff Goldblum has just purchased a security which has no maturity date and no promised dividend payments. He can recoup his investment by either selling the security to another individual. What type of security did Jeff purchase?

Common stock.

A corporation's written pledge to repay a specified amount of money with interest.

Corporate Bond

James Green just bought a stock which he expects will provide him with a quarterly cash payment, although that payment is not guaranteed. In fact, he expects the amount of the payment to vary over time. What type of payment is he expecting to receive?

Dividend.

A distribution of money, stock, or other property that a corporation pays to stockholders.

Dividends

An amount of money you can obtain quickly in case of immediate need.

Emergency Fund

Money that a business obtains from its owners.

Equity Capital

Increased demand for a product or service will usually result in lower prices for the item.

False

Time value of money refers to changes in consumer spending when inflation occurs.

False

________ goals relate to personal relationships, health, and education.

Intangible-purchase.

Which category of a home file includes stock and bond purchase documents?

Investment records.

A personal balance sheet presents:

Items owned and amounts owed.

The dollar amount that a lender makes available to a borrower.

Line of Credit

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

Personal balance sheet and cash flow statement.

Lindsey Holt owns stock in the Galloway Gems Company. She knows in advance that the dividend on this stock is a $1.50 per share. Given this, you know for sure that she purchased which type of stock?

Preferred.

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

Present value of a single amount.

The name given to a high-risk investment.

Speculative

Valerie Kilmer owns stock in the Williams Widget Company. She was just advised that in the near future she will be receiving two shares for every one share she owns today. What has the company declared that will cause this change to her shares?

Stock split.

Inflation reduces the buying power of the dollar.

True

The main goal of personal financial planning is managing your money to:

achieve personal economic satisfaction.

A major activity in the planning component of financial planning is:

anticipating spending through budgeting.

The following are examples of intangible-purchase goals, except:

buying a house.

Liquid assets refer to:

cash and other items that are easily converted to cash.

Future value calculations involve:

compounding.

Increased consumer spending will usually cause:

higher employment levels.

Higher consumer prices are likely to be accompanied by:

higher interest rates.

Inflation is likely to result from:

increased demand by consumers without increased supply.

If a family planned to spend $400 for food during April but only spent $350, this difference would be referred to as a:

surplus.

Total earnings of a person minus the deductions for taxes and other items is called:

take-home pay

The amount of income that a person or household has available to spend after deductions for taxes and other items is called

take-home pay.

To finance their business activities, many corporations prefer selling common stock because:

the money obtained from stockholders does not have to be repaid.

A budget is a spending plan that outlines how you will spend available income.

true

Flexible payments that change from month to month are referred to as:

variable expenses.

Opportunity cost refers to:

what a person gives up by making a choice.

Current liabilities differ from long-term liabilities based on:

when the debt is due.

Beverly Frickel purchased 100 shares of Gleason Systems stock for $32.50 per share. Her commission for this purchase was $25. She sold the stock two years later for $45 per share and a commission of $40. What was Beverly's total dollar return on this stock?

$1,185 ( [(100 × $45) - $40] - [($32.50 × 100) + $25] = $4,460 - $3,275 = $1,185 )

Patricia McDonald has determined that the value of her liquid assets is $4,500, the value of her real estate is $135,000, the value of her personal possessions is $58,000, and the value of her investment assets is $72,000. She has also determined the value of her current liabilities is $7,500 and the value of her long term liabilities is $98,000. What is Patricia's net worth?

$164,000 (Net worth = total assets - total liabilities = ($4,500 + $135,000 + $58,000 + $72,000) - ($7,500 + $98,000) = $164,000.)

Patricia McDonald has determined the following information about her own financial situation. Her checking account is worth $545 and her savings account is worth $1,000. She owns her own home that has a market value of $119,000. She has furniture and appliances worth $8,500 and a laptop worth $1,200. She has a car worth $9,700 and owes $8,200 on her auto loan. She has also purchased some stock worth $5,500 and she has a retirement account worth $27,655. What is the total value of her assets?

$173,100 (Total Assets = $545 + $1,000 + $19,000 + $8,500 + $1,200 + $9,700 + $5,500 + $27,655 = $173,100.)

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

$28,000.

Arnell Johnson bought 200 shares of Black Petroleum Company for $100 per share and paid a commission of $50. He sold the stock five years later for $125 per share and paid $65 commission. While he held the stock, it paid a dividend of $4.00 per share. What was Arnell's total dollar return on this stock?

$5,685 [(200 × $125) - $65] - [(200 × $100) + $50] + (200 × $4.00) = $24,935 - $20,050 + $800 = $5,685

The Fed refers to:

Federal Reserve System.

Which of the following would increase the risk of a loan to the lender?

Inflation rate greater than loan rate.

The ability to convert financial resources to cash without a loss in value.

Liquidity

The date on which a bond is to be repaid.

Maturity

Christopher Pratt just bought shares of common stock. Which one of the following is he entitled to based on his ownership of these shares?

Right to vote at annual meetings.

Which of the following is an example of opportunity cost?

Saving money instead of taking a vacation

The federal government requires corporations selling new issues of securities to disclose information about itself in a prospectus. Which of the following must be disclosed?

a. Assets and liabilities b. Products or services c. Qualifications of top management d. Corporate earnings :e. All of these must be disclosed

The current financial position of an individual or family is best presented with the use of a:

balance sheet.

The study of how wealth is created and distributed is:

economics.

Furniture, jewelry, and an automobile are examples of liquid assets.

false

Money management refers to long-term investment decisions.

false

Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to:

liquidity risk.

Higher interest rates can be caused by:

lower money supply.

The main responsibility of The Fed is to:

maintain an adequate supply of money.