Chpt. 1 Personal Finance

Financial Plan

A formalized plan that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities called a(n) _________ _________.

Emotional Decision Making

According to the MCPA Insights, which of the following is a common mistake related to implementing a financial plan?

False

All intangible-purchase goals relate to personal relationship

$5746

If you deposit $500 per year in an account for nine years at 6%, how much will you have in the account?

Economic Factors

Of the three elements that affect personal financial planning, which one does a person have no control over? Personal Finances Economic Factors Personal Opportunity Costs Marital Status

opportunity cost

Paul can invest his money in the stock market now instead of buying a new car; however, that would require a trade-off or;

true

Poor eating habits, lack of sleep, or avoiding exercise result in increased health care costs, and reduced financial security.

The imports are greater than the exports by two billion dollars. This means

Reports show that five billion dollaars worth of products are being imported while three billion dollars worth of products are being exported. What does this mean for the US domestic money supply?

short term goal that turns into a long term goal

Saving a year for a down payment on a house affect how soon you are able to purchase a house

saving for higher education

Sound financial goals for a full time student might include

Federal Reserve

The __________ ____________ System is the central bank of the United States and has significant economic responsibility.

Risk

The __________ premium represents the "extra" amount that you can expect to receive for investing in an instrument due to factors such as expected inflation and the uncertainty of getting your money back. r

True

The forces of supply and demand set prices of securities, goods, and services

the principal amount, length of time, and annual interest rate

To calculate time value of money for savings, the following items are needed:

Purchasing life insurance, planning for retirement, purchasing health insurance

common financial goals and activities include:

Creating financial goals to determine the financial action to be taken

Spending less money and saving more for retirement is a good example of what goal setting guideline?:

Bank and Trust is losing 3% of buying power

Bank and Trust receives an interest rate of 5%. The current inflation rate is 8%. Are they keeping up with the inflation rate?

purchase life insurance for care of dependents, naming guardians of children in will, carefully managing credit

Which of the following activities would be best suited for young couples with children under 18?

Considering the consequences of your choices, inflation risk, and evaluating risk

Which of the following are part of evaluating alternative courses of action in the financial planning process?

Determine current financial situation

Which of the following is the first step in the financial planning process?

Establishing Financial Independence, Purchasing Disability Insurance, Considering home purchase for tax benefit

Which of the following activities would be best suited for single adults aged 18 to 35?

not getting a high yield because you have set aside funds in a low risk investment, delaying investment while waiting for the time value of money to increase the pay received, trading in a large car with poor gas mileage for a smaller fuel efficient one, and not having as much money in savings because you purchased new appliances to save energy costs

Examples of Opportunity Costs Include:

True

A key factor in making financial decisions is time value of money. True or False

Specifying your goals will help you know your goals, create a plan to achieve them, & measure so you can see if you achieve them

Choose one of the statements about SMART financial goals

employment situation, age, marital status, number of household members

What are four situational influences for financial decisions?

Present Value

What is the current value of a future amount based on a certain interest rate and a certain time period?

To differentiate your needs from your wants

What is the purpose of developing and analyzing your financial goals?

Decrease

When consumer saving and investing increase, interest rates tend to _____________. (Think of supply and demand if there is more money out there being saved, what impact might that have rates on institutions are willing to pay for those savings?

Purchasing long term care coverage, reviewing retirement facilities, reviewing will and estate plans

Which of the following activities would be best suited for single adults aged 50 or older?

Age, Income, Household Size, and Personal Beliefs

Which of the following personal factors can impact spending and saving patterns of an individual?

Identifying current income, savings, living expenses and debts, preparing your personal financial statements

Determining your current situation involves which of the following:

The stages in the family situation and financial needs of an adult.

Identify the stage of the adult cycle that influence the financial activities and decisions.

10

John has an interest rate of 7.2% on his savings account. Using the Rule of 72, his money will double is _______ years.

x = ($300 x 5.076) x = $1,523 *5.076 came from chart of six years(period) and 5%

Marie will be receiving $300 per year for the next six years out of an investment account. The interest on the account is 5%, compounded annually. What is the present value of this annuity?

Review future assets and estate plans, Consider household budget changes several years prior to retirement, plan retirement housing, living expenses, recreational activities, and part time work.

Older Couple (50+) no children

time

The goal setting guidelines should be time-based indicating that you should have a set __________ frame for the goals to be achieved.

Index

The measure of the average change in the prices urban consumers pay for a fixed "basket" of goods and services is called the Consumer Price _____________.

True

The rule of 72 is used to determine the time that it would take for your money to double. True or False

True

Values are the ideas and principles that a person considers that a person considers correct, desirable, and important. True or False

spreadsheet software, financial calculator, formula calculatiom

What are some of the methods that can be used to compute time value of money?

Future Value

The amount to which current savings will increase based on a certain interest rate and a certain time period is called:

6%

Fred has good credit and can borrow at 5%. Bob has poor credit and can borrow at a rate of 11%. What is the amount of the risk premium that Bob will pay?

True

In the time value of money calculations, the future value of a deposited amount will always be greater than the original amount as the deposit will earn interest. True or False

False

Managing risk is not a financial planning activity True or False

True

Personal values have a direct influence on such decisions as spending now versus saving for the future. True or False

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Philip has an investment of $200 that is expected to earn 10% annually. How much will the investment be worth at the end of the second year if the investment earns interest compounded annually?

Personal Opportunity Costs

Rachel has been shopping for a new refrigerator over the course of three days instead of being at work. She finds a refrigerator that fits her needs and purchases it. This is an example of:

$220

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?

Persons on fixed incomes

The demographic that is most affected by inflation is:

two to five years

What is the typical time frame for an intermediate goal?

spending, saving, investing activities

When determining goal-setting guidelines, what three things should you take into account?

name guardian of children in will, purchase insurance for health, life, and disability insurance, saving money for college

Which of the following activities would be best suited for single parents with children under age 18?

necessities; nonessential

"Hidden" inflation exists when the cost of ______ rises rises at a higher rate than _________ items.

Inflation

A rise in the general level of prices is called:

annuity

A series of equal deposits or payments is called a(n):

Poor planning, weak management of money habits and advertising efforts and availability of goods encourages overspending,

According to the text, what are the two main reasons Americans have financial problems?

future

Compounding is also referred to as ________ value computations.

Identifying current income, savings, living expenses and debts, preparing your personal financial statements

Determining your current situation involve which of the following:

Obtain long term care, life, and disability insurance coverage, use defendant care service, provide for handling finances of elderly if they become ill, consider splitting investment cost.

which of the following activities would be suited for mixed generation, elderly individuals, and children under 18

Once a year

According to the text, you should do a complete review of your finances at least:

Continue the same course of action

After considering the alternative course of action to reach financial goals, one of the possible courses of action is to _______.

Decrease

When the level of exports of US made products is lower than imported goods, this will typically cause the domestic money supply to;

Considering a home purchase with a property agreement, Discuss and share joint and individual financial goals, Communicate budgeting attitude differences, plan joint and individual credit accounts

Which of the following specialized financial goals and activities are best suited for young, unmarried with duel income and no children?

career choices do not have risk and opportunity cost

Which of the following statements is not true

Coordinating Insurance Coverage, Develop Investment Programs, Consider tax deferred contributions to retirement fund

Which of the following would be best suited for young couples with duel income and no children?

Decreasing

Deflation is a decline in prices, which often results in consumers _________ their spending.

336 FV=PV(1 + i)^n

Paul needs to have $400 in three years. The interest earned on the account is 6% compounded annually. How much does he need to invest today?

poor eating habits that result in illness, avoiding exercise that results in increased health care costs, lack of sleep that results in illness

Personal Opportunity Costs related to health are:

100(1.04) = $104

Samantha wants to buy a new watch that costs $100. She decides to wait a year. All other factors being equal, if inflation is 4%, the watch will cost $______ next year.

American businesses compete against foreign companies for the spending dollars of American consumers. American consumers provide foreign companies with a market.

Which of the following is true regarding global influence of American consumption? The global economy is solely driven by American consumption. American businesses have no competitors in the global economy. American businesses compete against foreign companies for the spending dollars of American consumers. American consumers provide foreign companies with a market.

The consumer price index is based on items calculated in the predetermined manner.

Which of the following is true? Inflation hurts borrowers of money more than it does lenders. The consumer price index is based on items calculated in the predetermined manner. A reduced money supply causes lower interest rates.