FIN 201 Chapter One

If inflation is expected to be 8 percent, how long will it take for prices to double?

9 years

The major function of a financial plan is to

Achieve financial goals.

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

Risks associated with most financial decisions are easy to measure.

False

Which of the following is correct?

Food and clothing are consumable-product goals

Tim Calibe received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house he plans to purchase in 3 years. What type of computation should he use?

Future value of a single amount

An investor should expect to receive a risk premium for

Higher potential earnings due to uncertainty

An advantage of personal financial planning is:

Increased control of financial affairs

The time value of money refers to

Increases in an amount of money as a result of interest earned.

If a $10,000 investment earns a 9% annual return, what should its value be after one year?

$10,900 $10,000 * (1 + .09) = $10,900

If a $10,000 investment earns a 9% annual return, what should its value be after 7 years?

$18,280

Annual earnings on a $2,000 Certificate of Deposit earning 3.15% would be

$63

The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning.

Borrowing

The 'borrowing' activity in a financial plan relates to

Maintaining control of credit-buying habits

Many Americans have money problems because of

Poor planning and weak money management habits

Paul Jacoby wants to deposit money today for a vacation he plans to take to Asia after he graduates from Grad School. Which formula should he use to determine the amount of money he will have available for his vacation?

Present value of a single amount

Which of the following intermediate goals is stated most clearly?

Purchase a house with a mortgage no greater than $150,000 within 3 years

Which of the following goals would be the easiest to implement and measure?

Save $100 a month to create a $4,000 emergency fund.

An example of a personal opportunity cost would be

Time comparing several brands of personal computers.

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.

Opportunity costs refer to time, money, and other resources that are given up when a decision is made.

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

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

Type of investment.

The loss of a job is referred to as ____________ risk.

income

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