PERSONAL FINANCE - BUS 0200 01 A - Potential Quiz 1 Questions Personal Finance BUS 200
18. Your auto loan payments would be listed as an expense on the income and expense statement. a. True b. False
ANSWER: True
2. Your average propensity to consume is the percentage of each dollar of income, on the average, that is spent for current needs rather than savings. a. True b. False
ANSWER: True
21. The income and expense statement is a summary of actual income earned and expenses made over a specific point of time. a. True b. False
ANSWER: True
22. If you listed your gross salary in the income portion of the budget, the expenditures section must include income taxes and social security taxes. a. True b. False
ANSWER: True
29. If one wanted to make monthly deposits to accumulate funds for future expenditures, a money market account would be an appropriate savings vehicle. a. True b. False
ANSWER: True
37. Tax avoidance is legal, tax evasion is illegal. a. True b. False
ANSWER: True
38. The main objective of tax planning is to maximize the amount of money you keep by minimizing the amount of taxes you pay. a. True b. False
ANSWER: True
39. If you are eligible to receive a tax refund, you will have to file a tax return to get the refund. a. True b. False
ANSWER: True
4. Defining financial goals is an important first step in the personal financial planning process. a. True b. False
ANSWER: True
41. Qualified dividends are taxed at the same rates as long-term capital gains. a. True b. False
ANSWER: True
42. Tax credits are dollar-for-dollar reductions in taxes due. a. True b. False
ANSWER: True
6. Current consumption affects future consumption. a. True b. False
ANSWER: True
7. A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to consume of 90%. a. True b. False
ANSWER: True
9. Utility refers to the amount of satisfaction a person gets from buying certain items. a. True b. False
ANSWER: True
46. The personal balance sheet describes a family's wealth a. at a certain point in tine. b. as an annual summary. c. as a time period less than one year. d. at a future time. e. none of these
ANSWER: a
53. Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2,200, what are their total liabilities? a. $115,000 b. $140,000 c. $142,200 d. $165,000 e. $167,200
ANSWER: a
43. Henry is married to Lillian, and they have two dependent children. Henry can legally file using which of the following filing statuses? a. Single b. Married filing jointly c. Head of household d. Qualifying widow e. Any of the above
ANSWER: b
56. If your expenses exceed your income, the bottom line of your income/expense statement will show a [a. surplus or b.deficit].
ANSWER: b
57. You originally paid $6,000 for your car, which has a current market value of $4,000, and the balance of the loan against it is now $2,500. You will list this car in the assets section of your personal balance sheet at [a. $6,000 or b. $4,000].
ANSWER: b
36. Tax planning is most commonly done to a. reduce debt balances. b. change income patterns to avoid taxes. c. minimize taxes. d. pay extra taxes. e. learn the tax code.
ANSWER: c
45. If you do not wish to itemize deductions, you can use the a. pay-as-you-go amount. b. bracket deduction. c. standard deduction. d. exemption. e. withholding allowance.
ANSWER: c
48. Your ____ is an example of a liquid asset. a. home b. car c. checking account d. charge account e. life insurance cash value
ANSWER: c
50. Sam and his wife Ann purchased a home in Lubbock, Texas, in 1980 for $100,000. Their original home mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 on their home mortgage. Sam and Sally are now constructing their balance sheet. How should their home be reflected on their current personal balance sheet? a. $200,000 asset and $55,000 liability b. $200,000 asset and $90,000 liability c. $175,000 asset and $55,000 liability d. $175,000 asset and $90,000 liability e. $100,000 asset and $55,000 liability
ANSWER: c
30. Saving for a child's education is an example of a. accumulating wealth. b. a tangible asset. c. estate planning. d. deferred spending. e. propensity to consume.
ANSWER: d
31. The average propensity to consume refers to the a. dollars of income spent for current consumption. b. percentage of income saved. c. expenditures for the minimum necessities of life. d. percentage of income spent for current consumption. e. fact that people with higher incomes spend more for the necessities of life.
ANSWER: d
32. Becky graduated with a master's degree in Personal Financial Planning. After working two years in a small financial planning firm, Becky earns $60,000 annually and saves $10,000 a year. What is her average propensity to consume? a. 16.7% b. 25.5% c. 75.7% d. 83.3% e. 95.5%
ANSWER: d
44. A capital gain is the result of a. selling an asset for less than its purchase price. b. holding an asset that has appreciated. c. selling an asset at the same price of purchase. d. selling an asset for more than its purchase price. e. none of these.
ANSWER: d
47. The three parts of your personal balance sheet are a. income, liabilities, balance. b. assets, expenditures, balance. c. assets, liabilities, balance. d. assets, liabilities, net worth. e. income, liabilities, net worth.
ANSWER: d
51. ____ would not be listed as a liability on your personal balance sheet. a. Taxes owed b. Loan balances c. Bank credit card charges d. Savings accounts e. Rent due
ANSWER: d
33. Which of the following questions should you ask yourself when developing your financial goals? a. How important is money to me? b. Am I a risk taker? c. What do I like to buy? d. Does money make me feel secure? e. All of these
ANSWER: e
49. Kathy purchased new furniture for $10,000. She put $1,000 down and financed $9,000. She will pay $350 per month until the loan is paid off. Which of the following is true? a. The furniture should be recorded as an asset of $10,000 on Kathy's personal balance sheet. b. The $9,000 is entered as a liability on Kathy's personal balance sheet. c. The furniture should be recorded as a $1,000 expenditure on Kathy's personal balance sheet. d. The $350 payments are expenses on Kathy's income and expense statement. e. All are correct except c.
ANSWER: e
58. Higher interest rates on certificates of deposit are associated with a. higher account balances. b. shorter time periods. c. longer time periods. d. both a and b. e. both a and c.
ANSWER: e
52. Net worth is measured by a. bank card balances. b. house mortgage balances. c. amount owed on an automobile loan. d. assets minus liabilities. e. insurance premium.
ANSWER: d
54. Phil has $2,000 and he needs it to grow to $4,000 in 8 years. Assuming he adds no more money to this fund, what rate of return would he need to earn? a. 6% b. 7% c. 8% d. 9% e. 10%
ANSWER: d Use the rule of 72. If you divide an interest rate into the number 72, you will know in how many years it will double. Additionally, if you divide 72 into the number of years it takes to double an amount, the answer will be the interest rate you need.
34. Generally, as income rises, the average propensity to consume a. stabilizes. b. drops to zero. c. increases. d. becomes erratic. e. decreases.
ANSWER: e
23. An income and expense statement deficit would increase net worth. a. True b. False
ANSWER: False
26. The rate of return on liquid assets is relatively high compared to other types of investments. a. True b. False
ANSWER: False
3. A good financial plan completed when one is in their 30s will typically last a lifetime. a. True b. False
ANSWER: False
5. The need for financial planning declines as your income increases. a. True b. False
ANSWER: False
8. Wealthy people have a higher average propensity to consume. a. True b. False
ANSWER: False
17. Money I loaned to a friend is a liability on my balance sheet. a. True b. False
ANSWER: False Money you LOAN is an asset. Money you BORROW is a liability.
40. The Internal Revenue Service is responsible for making changes to the federal income tax codes. a. True b. False
ANSWER: False It's Congress!
27. Money market mutual funds are insured up to $250,000 by the FDIC if purchased at an insured bank. a. True b. False
ANSWER: False Money Market Deposit Accounts are insured
28. FDIC covers stocks, bonds, and mutual funds purchased at banks. a. True b. False
ANSWER: False Only deposit accounts are insured.
11. Your personal value system will shape your attitude toward money and wealth accumulation. a. True b. False
ANSWER: TRUE
12. Personal financial statements help you identify potential financial problems. a. True b. False
ANSWER: TRUE
13. Investments are mostly intangible financial assets acquired to achieve long-term personal financial goals. a. True b. False
ANSWER: TRUE
14. The value of assets purchased on credit should be included on the asset side of your personal balance sheet. a. True b. False
ANSWER: TRUE
15. A house and land are examples of real property. a. True b. False
ANSWER: TRUE
24. Using time value of money is important when planning for long-term goals. a. True b. False
ANSWER: TRUE
25. The federal personal income tax is a progressive tax. a. True b. False
ANSWER: TRUE
1. Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or family. a. True b. False
ANSWER: True
10. Personal financial planning involves translating financial goals into action plans. a. True b. False
ANSWER: True
35. The most important financial planning for young people concerns a. career. b. insurance. c. investment. d. taxes. e. retirement.
ANSWER: A
55. When your liabilities exceed your assets, you are [a. solvent or b. insolvent].
ANSWER: B
16. Investment assets include items such as boats or automobiles. a. True b. False
ANSWER: False
19. The balance sheet equation is assets plus liabilities equals net worth. a. True b. False
ANSWER: False
20. The income and expense statement looks forward in time, while a budget is backward looking. a. True b. False
ANSWER: False