Chapter One Quiz
Randy Hill wants to retire in 40 years with $2,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal?
$50,000
Place the following steps for a personal financial plan in the proper order: 1. Review and revise your plan 2. Identify alternative courses of action 3. Create and implement your financial action plan 4. Determine your current financial situation 5. Evaluate your alternatives 6. Develop your financial goals
4, 6, 2, 5, 3, 1
The goal of purchasing a long-term care insurance policy would be most appropriate for
A single adult nearing retirement age.
The inflation rate for a household will be:
Either greater than or less than the inflation rate as reported by the CPI depending on the household's "basket" of goods and services purchased
A financial plan is an informal report that analyzes past financial decisions.
False
A financial plan is another name for a budget.
False
Developing a budget is part of the "spending" component of financial planning.
False
Financial Plans are only created by financial planners.
False
Higher inflation usually results in lower interest rates.
False
Inflation is most harmful to people with incomes expected to increase
False
Purchasing a car is an example of a consumable-product goal.
False
The life situation of a household has little influence on personal financial planning decisions.
False
The long-term goals for a young single will probably be the same as those for an older couple with no dependent children at home.
False
A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a(n)
Financial Plan
Jake Jones wants to deposit $100 per month into an account earning 5 percent for the next 4 years so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have for his purchase?
Future value of an annuity
Higher consumer prices are likely to be accompanied by
Higher interest rates
Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt. He usually makes minimum payments on his debt and he has been late with three payments in the last year. He wants to buy a new car but was told that his interest rate on a loan would be very high. What is the most likely reason this might be so?
His credit rating is poor because of his late payments
The time value of money refers to
Increases in an amount of money as a result of interest earned.
The rising of prices that causes changes in buying power is referred to as ____________ risk.
Inflation
The changing cost of money is referred to as ____________ risk.
Interest-rate
The potential for difficulty to convert an investment to cash is referred to as ____________ risk.
Liquidity
Many Americans have money problems because of
Poor planning and weak money management habits
Wanda Green wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?
Present value of an annuity
The uncertainty associated with decision making is referred to as
Risk
The consumer price index reflects:
The change in prices of products and services of urban consumers
John Jones was laid off of his job two months ago. He just received an offer for a position that pays 2/3 the salary of his old job. Why should he set up a financial plan?
To increase the effectiveness of obtaining, using, and protecting his financial resources.
Inflation reduces the buying power of money.
True
Personal financial planning is the process of managing your money to achieve personal economic satisfaction
True
Retirement planning includes thinking about your housing situation, recreational activities, and possible volunteer or part-time work.
True
When prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years.
True