Concepts of Personal Finance

A comprehensive financial plan can:

1) Enhance the quality of your life and increase your satisfaction by reducing uncertainty about future needs and resources. 2) Increase effectiveness in obtaining, using, and protecting throughout your life. 3) Increased control of your financial activities by avoiding excessive debt, bankruptcy, and dependence on others for economic security or gain. 4)Enhanced freedom from financial worries obtained by looking into the future, anticipating expenses, and achieving your personal economical goals.

The Financial Planning Process

1. Determine current financial situation 2. Develop your financial goals 3. Identify alternative courses of action 4. Evaluate alternatives 5. Create and implement your financial action plan 6. Review and revise the financial plan

Which of the following is not a component of money management?

Storing personal financial records, create personal financial statements and creating a budget are all components of money management.

Which of the following is most correct?

Tax records belong in a home file.

Expenditures

The action of spending funds

Intangible

incapable of being perceived by the senses especially the sense of touch. Impalpable.

Compound Interest

interest calculated on both the principal and the accrued interest

Capital Gain

is the difference between an asset's purchasing price and selling price, when the difference is positive.

Yearly Interest Rate

sometimes called the standard annual interest rate or base rate, is the percentage value you usually see first when comparing financial products. It's the basic interest that you'll pay on your loan or earn on your savings account without taking compounding or fees into consideration

Cash flow

the actual inflow and outflow of cash during a given time period.

Capital Loss

the difference between a lower selling price and a higher purchase price resulting in a financial loss to the seller

insolvency

the inability to pay debts when they are due because liabilities far exceed the value of assets

opportunity cost

the loss of potential gain from other alternatives when one alternative is chosen.

Interest

the price paid for the use of borrowed money

Tangible Assets

those assets that can be appraised by value or seen or touched

The goal of investing $50, per month for the next 12 years for your nephew's college fund is a _____________goal. A) short-term B) intermediate C)long-term D) Intangible E) Durable

C) long-term

To calculate the time value of money, we need to consider all of the following:

Amount of the savings Annual interest rate (APR) Time of investment Principal

A broker statement is an example of what?

An investment record

APR (Annual Percentage Rate)%

Annual percentage rate is the amount of interest charged for any unpaid balance. for an example: Capital One, Discover or Master Card.

Tangible

Capable of being perceived especially by the sense of touch.

Cash flow statement

A financial statement that summarizes cash receipts and payments for a given period; also called a personal income and expenditure statement.

The saving component of financial planning focuses on long-term security and includes:

A regular savings plan.

Present value computations are also referred to as: A) Discounting B) Future Value C) Compounding D) Simple Interest E) An Annuity

A) Discounting

Attempts to increase income through employment are part of the _____________ component of financial planning. A) Obtaining B) Planning C) saving D) borrowing E) Spending

A) Obtaining

Which of the following would increase the interest rate for a loan? A) Poor credit rating B) Higher down payment C) Expected lower inflation D) Lower consumer prices E) short time to maturity

A) poor credit rating

Which of the following is most correct?

A. Rare coins and stamps belong in a safe deposit box

If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit? A) $885 B) $889 C) $1,000 D) $1,030 E) 1,040

B) $889

opportunity cost refers to: A) money needed for major consumer purchases B) what you give up by making a choice C) the amount paid for taxes when a purchase is made D) Current interst rates E) evaluating different alternatives for financial decisions

B) what you give up by making a choice

The first step of the financial planning process is to: A) Develop financial plan B) implement the financial plan C) Determine your current financial situation

C) Determine your current financial situation

If I invest a dollar today and earn interest a dollar today and earn interest on it, then it should be worth_______________ in the future. A) less B) The same as C) More D) either less or the same as E) Either the same as or more

C) More

Interest Rate Risk

Changing interest rates affect costs ( when you borrow) and your benefits (when you save or invest) Borrowing at a low interest rate when interest rates are rising can be to the consumer's advantage. Variable- Rate loans may increase, resulting in higher payments. If you save when interest rates are dropping, you will earn a lower return with a six-month savings certificate than with a certificate still having to mature.

Future value computations are often referred to as: A)discounting b)present value c)compounding d) simple interest e) annuity

Compounding

Robert Brown is interested in attending a concert next week. unfortunately, he is scheduled to work. if he needs to subsititure for his shift so he could attend, what kind of cost is he accruing?

Cost relating to time

A home file should be used for storing records for:

Current needs.

If a $10,000 investment earns a 7% annual return, what should its value be after 6 years?- A) $10,000 B)$10,700 C) $15,000 D) $15,010 E) $15,100

D) $15,010

Which of the following best describes the concept of the time value of money? A) Personal opportunity costs such as time lost on an activity. B) Financial decisions that require borrowing funds from a financial institution. C) Changes in interest rates due to changes in the supply & demand for money in our economy. d) increases in an amount of money as a result of interest earned. e) changing demographic trends in our society.

D) increases in an amount of money as a result of intrest earned.

an example of a personal opportunity cost would be: A) interest lost by using savings to make a purchase B) Higher earnings on a savings that must be kept on deposit a minimum of six months. C) Lost wages due to containing as a full-time student. D)Time comparing several brands of personal computer E) having to pay a tax penalty due to not having enough withheld from your monthly salary

D) time comparing several brands of personal computer

Money management refers to

Day to day activities

Assessing your financially situation should include you identifying assets and?

Debt

________ goals relate to infrequently purchased, expensive tangible items. A)Short-term B) Intangible-purchase C) Durable-product D) Consumable-products E)Intermediate

Durable-product

Consequences of actions

Every decision closes off alternatives. For an example, a decision to invest in stock may mean you can't take a vacation or go to work full-time because you're going to school full-time.

Which of the following are correct? A) A car purchase is a consumable-product goal B) Entertainment is a durable-product goal. C) Leisure and education are durable. D) Food and clothing are consumable-product goals. E) appliances and sporting equipment are intangible-purchase goals.

Food and clothing are consumable-product goals.

the of a job or encountering an illness results in _______ risk.

Income

What is the Finance Planning Process?

Is the process of managing your money to achieve economic satisfaction.

Economixs

Is the study of how wealth is created and distributed. The economic environment includes various institutions, such as businesses.

the tangible and intangible factors that create a less than desirable situation is referred to as?

Personal Situation

Accrued Revenues

Revenues earned but not yet received in cash or recorded at the statement date. Accrued revenues result from the passing of time (e.g., interest revenue and rent revenue) or from unbilled or uncollected services that a company performed (e.g., commissions and fees). - Prior to adjustment both assets and revenues are understated. Accordingly, an adjusting entry for accrued revenues results in a debit (increase) to an asset account and a credit (increase) to a revenue account.

Inflation risks

Rising prices cause lower buying power. Buying an item later may mean a higher price. Decide whether to buy something now or later. If you buy later, you may have to pay more.

The number of personal financial records a household has organize may seem overwhelming. how long should you keep copies of your tax returns?

Seven Years

Liquidity Risk

Some savings and investments have potential for higher earnings. However, they may be more difficult to convert to cash or to sell without significant loss in value.

Variable

Something, such as stock prices, earnings, dividend payments, interest rates, and gross domestic product, that has no fixed quantitative value. See also dependent variable, independent variable.

Opportunity Cost

What a person gives up by making a choice

What is opportunity cost give example?

What are some other examples of opportunity cost? A student spends three hours and $20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else.

safety deposit box

a private storage area at a financial institution with maximum security for valuables.

Annuity

a specified income payable at stated intervals for a fixed or a contingent period, often for the recipient's life, in consideration of a stipulated premium paid either in prior installment payments or in a single payment. the right to receive such an income, or the duty to make such a payment or payments.

intagible assets

assets that can't be touched (patents, copyrights, and goodwill)