Chapter 10 Section 1 and 2

With which type of investment would the liquidity risk be highest: a baseball card collection, a savings account, or money hidden in a dresser drawer?

Baseball card collection because the value could decrease in addition to a decrease in the number of buyers, nobody can touch money in your drawer and a savings account will maintain value over time.

What are the main reasons people invest?

- To have growth in income - Secure financial future - Long term growth

What are two advantages of having a personal financial plan?

-Freedom from financial worries -Independence

Kris has decided to donate half of what she earns to an organization that helps the homeless. She is saving the other half to buy a car. What are the opportunity costs of her decision? What role do her values play in making a financial plan?

1- The opportunity costs are she can't spend as much on herself and she can invest her money for retirement or save for anything other than a car. 2- Her values play a strong role. Since she values helping the homeless she can't buy her car as soon.

What are three personal factors that can affect your financial plan?

1. Debt 2. Wages for job or if you have any job 3. Inheritance

What is a consumer?

A person who purchases and uses goods or services.

What is annuity?

A series of equal regular deposits

Whats a service? Give an example

A task a person or a machine performs for you. Ex: A haircut

What is an intangible?

Cannot be touched and often are important to your well being and happiness. Ex: Health, education, and free time

Categorize The following goods as Consumable, Durable, or intangible: concert tickets, leisure time, microwave, college Education, Gasoline for your car.

Consumable: Gasoline for your car, Concert tickets Durable: Microwave Intangible: Leisure time, college education

Give two examples of a financial opportunity cost.

Donating money instead of buying a new car. Buying coffee everyday instead of saving that money.

What is a durable?

Expensive items that you do not purchase often Ex: Cars, ovens, washers, and other large appliances

Explain in short intermediate and long term goals. Give examples.

Goals are things you want to achieve. An intermediate goal is something that can be achieved in 2-5 years. Ex of intermediate: Going to college Long term goals are over 5 years. Ex long term: Retirement and graduating college

What are two economic factors that affect financial decisions? How will these affect your financial planning?

Inflation- Can change the worth of your money Intrest- Can increase how much money you have

Why does compound interest benefit someone who is saving money?

It allows them to gain more interest thus more money.

Why is it important to distinguish between your needs and wants?

It is important so you get all your needs first and make sure your financially stable enough to then buy your wants.

What factors effect personal financial planning?

Life situations, personal values, and economic factors.

What is a consumable?

Purchases you make often and use up Ex: Shampoo and food

What is personal financial planning?

Saving and investing money to be able to live comfortably.

Whats a good? Give an example

Something that can be weighed and produced. Ex: A car

Six steps to create financial plan

Step 1- determine financial situation Step 2-Develop your financial goals Step 3- Identify alternative courses of action Step 4- Evaluate alternatives Step 5-Create and use your financial plan of action Step 6- Review and revise plan

What is liquidity?

The ability to easily convert financial assets into cash without loss in value.

What is present value?

The amount of money you need to deposit in order to have a desired amounting the future.

What is future value?

The amount your original deposit will be worth in the future based on earning interest.

What is inflation? How can it effect your personal financial plan?

The increase in prices and fall in the purchasing value of money. Affects your financial plan by being a risk to how much your money is actually worth.

What is the time value of money?

The increase of the amount of money due to earned interest or dividends

What is the principal?

The original amount of money you deposit.

What role do values play in creating a personal financial plan? What are two examples of how different values might lead to different financial goals?

They make your wants into more of needs. For example if you value family than you may give up a higher paying job to be closer to your family. Or if you value working you might not go to school and just start working.

What are the opportunity costs associate with financial planning? Give an example.

What you lose or gain when you choose one thing over another. An example with financial planning would be spending money on something rather than the other.

How can investing your money help you achieve your financial goals?

You can gain money and the principle of investing/saving.