TEST 1 FIN questions
Which of the following is the first step in the financial planning process?
Determine your current financial situation.
Paul needs to have $200 in two years. The interest earned on the account is 4%, compounded annually. How much does he need to invest today?
$185
Sam has an investment of $200 that is expected to earn 10%. How much will the investment be worth at the end of the first year if the investment earns simple interest?
$220
Paula needs to have $400 in three years. The interest earned on the account is 6%, compounded annually. How much does she need to invest today?
$336
Step 3 of budgeting
Allocate emergency fund and savings
Step 4 of budgeting
Budget known expenses
Which of the following assets are liquid assets?
Cash value of life insurance, savings account, Money market account, Cash
Spending less money and saving more for retirement is a good example of what goal setting guideline?
Creating financial goals to determine the financial action to be taken
What are the four situational influences for financial decisions?
Number and age of household members, marital status, employment situation, age
Which of the following provide accurate explanations of net worth?
The amount you would have if you sold the assets and paid off the liabilities, Assets less liabilities
A ______ is a series of equal deposits or payments
annuity
When the level of exports of U.S.-made products is lower than imported goods, this will typically cause the domestic money supply to:
decrease
Another name used for calculating present value is ______. Compounding is the other term for future value.
discounting
Step 2 of budgeting
estimate expected income
Which elements collectively create the national economy?
government, business, labor force
The inability to pay debts when they are due is called
insolvency
The risk premium includes the following factors:
length of time, uncertainty of getting money back, expected inflation, interest rates
Current (short-term) liabilities include:
medical bills and insurance premiums
Paul can invest his money in the stock market now instead of buying a new car; however, that would require a trade-off or:
opportunity cost
Opportunity costs can be viewed in terms of
personal resources, and financial resources
To measure changes taking place in your financial situation, you probably need to calculate financial ______.
ratios
Identifying alternative courses of action is the ______ step in the financial planning process.
third
What is the current value of a future amount based on a certain interest rate and a certain time period?
Present value
What measures the increase in an amount of money as a result of interest earned?
Time value of money
What are some of the methods that cannot be used to compute time value of money?
bankers books, and measuring tape
Step 5 of budgeting
budget estimated expenses
"Hidden" inflation exists when:
the cost of necessities rise at a higher rate than nonessential items
Which combination of liabilities would be classified as current on a balance sheet?
Medical bills, income tax payments owed, insurance premiums to be paid next month, and charge accounts
When preparing a personal balance sheet, which of the following statements should you not do?
Subtract assets from liabilities to determine net worth
Paula invested $370. The interest earned is 4%, compounded annually. At the end of two years, Paula will have about:
$400
If you deposit $500 per year in an account for nine years at 6% compounded annually, how much will you have in the account? Round your answer to the nearest dollar.
$5,746
How often should you prepare a balance sheet?
Every three to six months
the difference between the actual amount spent or received and the amount budgeted.
budget variance
Another name used for discounting is:
present value computations
Step 6 of budgeting
record spending amounts and evaluate revisions
Step 1 of budgeting
set financial goals
The text covers ______ main money management activities.
three
