Financial Planning Mid-Term

Mamie put $10,000 in an account that paid 3% annual compounding interest. How much was in the account after 2 years?

$10,609

William's car payment is $350 per month. His car loan is for three years at 3% annual interest rate? How much was the original amount of his car loan?

$12,035.26

Spencer put $500 in a bank account that paid simple interest at 5% annually. How much interest did he earn in year 3

$25

Ida is buying a new car and will finance $22,000. The car dealership will lend to her the loan for five years at 3% annual interest rate. What will be her monthly car payment?

$395.31

Charles can invest $100 per month for his retirement fund. If his investment fund earns 6% annually for the next 20 years, how much will he have?

$46,204.09

Lynda automatically transfer $100 per month from her checking account into her mutual fund investments. This type of calculation involves the ______ category of time value of money

Annuity

______________ is one of the five C's of credit and is the willingness to pay bills on time

Character

A credit score is derived from gathering information from your _______-

Credit report

You can expect _______ to use your credit score to decide what they will charge or if they will do business with you as a consumer

Employers, landlords, banks, car insurance companies

They key to credit cards is to:

Understand how they work, know when to use them, know when to avoid using them, know what purpose they should serve

Bryon just started a new job and received a $3,000 signing bonus. He deposited the full amount and left it in the bank for five years, earning 1.9% per year. This type of time value of money category is classified as:

a lump sum

Just because you are ________ for a loan does not mean you ___________- it

approved; can afford

Couples are likely to overspend when they do not ________ their goals

communicate

By obligating future income, debt

is risky and reduces our available choices

Cedric invested $1,500 and let it earn interest at 2.4% for seven years. When he withdrew his money, there was $1,752 in the account. This account:

paid simple interest

In finance, the concept that helps us understand how money grows exponentially over time or how to calculate a car payment is called:

time value of money

Natashia recently received an inheritance. Her financial advisor told her to invest her money for 20 years at 10% to achieve her goal of $100,000. Instead, she decided to withdraw her money in half the time, after just ten years. When Natasha looked at her account at the end of the investment period, she discovered it was:

way lower than $50,000

When investing, you can expect to earn most of the interest in the later years because:

you earn interest on the interest

Louie keeps running out of money before his rent is due. He is not doing very well at controlling his spending. A good tool he should be using is a:

Budget A budget will help him control his money

Gretchen is applying for a new credit card at the department store. They ran a quick check and denied her credit. When she inquired about the details of why she was denied, the credit bureau indicated she had missed several payments in the past. This means she was denied due to her:

Character

Bob's friends invited him to a concert this weekend, but he doesn't have any cash to pay for the tickets. Bob decides to use his credit card and purchase a ticket anyway. In other words, Bob is using _______ to buy the tickets

Credit

Victor was denied his application for a credit card. The reason is that his ______ was only 620

Credit score

The financial planning process steps, in the correct order, are:

Develop your goals; Manage your budget; Monitor and review; Repeat First, develop your goals, and then manage your budget so your money goes where you direct it. Next, monitor and review your budget and goals to make sure you are on track and repeat this cycle each month or as your budget and goals change

To make sure your money is spent on your highest priorities, you should:

Establish financial goals

Elaine's aunt generously gave her $3,500 for her birthday. If she can deposit it into an account that earns 7% per year, how many years will it take for the account to grow to $6,100

For the account to grow to $6,100, it will take 8.2 years - N: FIND - I: 7 - PV: -3,500 - PMT: 0 - FV: 6,100

Patty is planning a nice tropical vacation for next summer. She is saving $250 per month, at 1.5% for the next ten months so she can pay cash for her trip. What type of TVM problem is this?

Future value of an annuity

Melvin is saving for a new car. He needs $22,000 and will make the purchase in five years. If his account pays 5.00% per year, compounded monthly, how much does he have to save each month, assuming he has nothing saved yet?

In order to save the $22,000, the amount Melvin will need to save each month is $323

Which of the following is NOT one of the psychological reasons people usually end up in debt?

Low incomes

Chad is trying to improve his credit score. Which action would most likely help?

Reduce the amount of debt he has

According to the authors, to improve your chance of success with your financial plan you should follow the acronym:

S.P.E.N.D The acronym S.P.E.N.D. covers most areas of financial planning including: emergencies, proper planning, smart shopping, and non-monthly expenses

Assuming your credit report is accurate, all the following are in your credit report except your:

Salary

When looking at our acronym S.P.E.N.D., the letter 'N" refers to whom?

Salespeople, Family, Co-workers, Friends Anyone can try to influence how you to spend your money, or how much you spend. Always remember that it is your money

When looking at our acronym S.P.E.N.D., the letter "N" refers to whom?

Salespeople, friends, family, co-workers

Tracy just took out a loan for her new(ish) car. Her monthly payments are $332.25 for three years. Assuming the interest rate 5.73%, how much did she borrow for the car?

The amount she borrowed to purchase the car is $10,965

Viola just completed her net worth worksheet. Her total net worth is a positive number. What does this mean for Viola?

The total worth of her assets exceeds the total amount of her debts

For maximum protection with online purchases, it is best for people to use:

Their credit card

Most people need to _______ at some time to accomplish their financial goals and to better their lives

borrow

Ahmet is working on his budget process. He has already created an estimated one-month budget and tracked an actual month of spending. His next step should be to:

compare the two budgets He is now on the third step of the budget process, which it to compare the two budgets to see where adjustments need to be made

Heather makes and sells jewelry. She always saves the first $200 she sells each month in an account that earns 3% interest. To calculate how much she will have in the account at the end of three years, she would be solving for:

future value of an annuity

When it comes to improving your personal finances, most people think that _________ is the answer, but it is not.

more money When it comes to personal finances, more money is not the answer. It is about how you handle your money

Brianna went to www.annualcreditreport.com to get her free credit score. When she logged in she:

received three free credit reports, but no free credit score

Payday loans are some of the most _____ and _____ loans around

risky; expensive

Jamal invested $4,000 in his account, which pays 6% annually. How much will he have in his accounnt in 11 years?

$7,593 - N:11 - I: 6 - PV: -4,000 - PMT: 0 - FV: FIND

What is the best method most people can follow to avoid the temptation of spending all their money too fast

Budgeting Budgeting allows a person to see where they want their money to go and by monitoring their budget, they can take corrective action when necessary

Mary owns a local retail shop that is gaining in popularity. Many of her customers express an interest in buying more of her items, but they don't like to travel so far. Mary realizes that she could invest in her company and expand to other areas and hire more employees. Like most businesses, Mary is going to need _______ to accomplish these goals

Credit

Elle has made a few money mistakes over the past few semesters by missing some credit card payments and falling behind by three or four months on her car payment. She is concerned because her credit score is probably low which could affect her ability to:

Get car insurance, get an apartment, get a new credit card, get a job

Parvé has set a goal to accumulate $10,000 by investing a small amount of his paycheck each month and earning a reasonable amount of interest. He wants to use this money to buy a house. This is not a S.M.A.R.T. goal because:

He did not set a time frame He did not specify a date or time by which he wants to reach the goal

Kyle was comparing two of his credit reports. He noticed that the credit card he has from his local credit union was on his Experian but not his TransUnion report. Most likely this is because:

His credit union only reports to Experian

George walked his neighbor's dogs the summer before he started college and made $800. He put all the money in a high-interest savings account. Three years later, his account balance was $893. What component of TVM could he solve for?

Interest rate of a lump sum

Franco's financial plan seemed to be going smoothly when suddenly he received a bill for $700 for personal property tax on his expensive car. This ruined his budget for the current month as well as the next several months. This could have been prevented if he had:

Not forgotten non-monthly expenses

Franklin invested his $4,000 bonus at work in an account that had the potential to earn up to 10% compounded annually. He asked his advisor how risky the investment was because he was more concerned about protecting his $4,000 investment than about earning much interest. In other words, he really want to protect hisL

Principal

Almost all lenders look at anyone applying for a loan based on the _______ presented to the lender

Risk

Bertha owns a $3,4000 car, $500 in clothes, and $2,000 in electronic items and has $1,975 in her bank account. She has $7,000 in student loans and still owes $2,050 on her car. From this information we can conclude

She has a negative net worth

Jerald has been investing $2,000 per year for the past 7 years. Since his account has grown at 7.4% per year during that time, he can expect the account to have ______ in it

The amount Jerald can expect in his account is $17520 - N:7 - I: 7.4 - PV: 0 - PMT: -2000 - FV: FIND

John is trying to burrow money for a house. His credit union said the application process is going to include looking at his creditworthiness to determine if the credit union will loan him money and at what interest rate. The credit union will base their decision on John's:

They won't base their decision on John's ethnicity, religion, race or budget

Quincy is 62 years old and plans to retire later this year. He is concerned about his grown children and grandchildren and wants to make sure he can provide as much support to them as possible, especially after he is gone. He is in the __________ stage of his financial life cycle

Wealth distribution

Yana has just completed her budget. Her take-home pay is $2,500 per month. Her monthly total household expenses are $1,500, her total debt payments are $930, and she spends $530 on food and entertainment and $205 on clothes. Her budget indicates a monthly:

budget deficit

Basic financial planning _______

clears away the complexity With proper financial planning, everything becomes clearer and less complex

Sharice was concerned that she would not be able to afford the payments on her new credit card. Even though she has not used it for any purchases, they issued her a credit line of $10,000 - and now she is really upset and doesn't know what to do. Sharice's concern is probably because she is confusing the concepts of:

credit and debt

Nona has an extra $74.97 per month to start investing for her daughter's college fund. She will invest for 18 years and needs $29,500 when her daughter begins college. As Nona is shopping for investments, what annual interest rate does she need to earn?

6.15%

Fillipe has a much lower credit score than Jane. If they both apply for the same loan what is likely to happen>

Jane and Fillipe will be approved, but Fillipe will pay a higher interest rate

Gerard's band made $400 last weekend. His cut was $133. He put the money in an account that earns 7%. If he were to withdraw the money in 2 years, how much will he be able to withdraw from the account?

The amount he will be able to withdraw is $152.27 - N:2 - I: 7 - PV: -133 - PMT: 0 - FV: FIND

For debt to be 'bad debt', the item purchased with that debt must:

display just one of these features: depreciate, last less time than the loan, or have negative financial leverage

The reason it is suggested that you __________ is so you handle the money the way you want to and make sure it is being spent on your highest priorities

establish financial goals

Even people that are responsible with their money and never spend more than they make have trouble covering an emergency if

the expense is not planned for in their budget Being responsible with regular bills is helpful, but planning for emergencies in a budget is the best way to handle such a situation without difficulty

Leslie could invest some money for a few years. Despite only investing $1,000, Leslie was surprised to see that his money had grown to $3,000 in just eight years. Leslie was surprised because he didn't understand the concept of:

time value of money

John is a famous athlete that made over $30 million during his professional athletic career. However, within three years after retiring from sports, he went bankrupt. Like many famous people who go broke, John most likely does not know how to:

Control his spending

Chia is working with a financial planner who is concerned about the potential that Interest rates could start rising soon, just before Chia is ready to buy a house. Her financial planner is focused on which common lifestyle force?

Macroeconomic conditions

Bryan wants to purchase a car, but due to several missed payments in the past, identified on his credit report, his loan is denied. The dealership says they will loan him the money, but he will have to bring in a much larger down payment. The dealership, using the five Cs of credit, denied his loan due to his _______ but will still give him the loan if he improves his ______

Character; capital

Jade has had a credit history for nearly ten years. In that time, she has opened five credit cards, taken out no loans, and not opened a new card recently. She has also never been late or missed any payments, and only owes about 20% of her available balance. Her score is lower than she expected. What element of her credit score is likely preventing it from being higher?

Types of credit

Kevin was asking his friend Regina, who is a loan officer, about the entire loan process. Regina explained a lot of details that confused Kevin. She finally summarized the whole process and said the bank wants to determine what type of ________ the borrower will present

Risk

Personal financial success is not about how much you make but about how much you:

Spend No matter how much you make, if you spend more than you earn, then you will end up broke. Spending is the easiest part to control and will determine your financial success

Most lending institutions use a process called ______ when deciding whether to lend you money

Underwriting

Wendy was reviewing her credit report. Since the report was complete and accurate, she could find all the following information except

her current income

Bershir manages his budget well and even makes a list before he goes shopping. However, it seems that every time he goes shopping he sees items not on his list that he really wants and spends way too much money on them and then ends up running out of money before his next paycheck. His biggest issue seems to be

impulse buying

Charissa is working full-time with a decent salary. She would like to save $12,000 to own her own condominium in four years. Her goal is considered:

mid-term

Your _____ is a financial statement that provides a snapshot in time of your financial position

net worth statement A net worth statement is a snapshot of your financial position at a specific point in time

Deedra has been trying to be responsible with her money. She even paid off her student loans early! Unfortunately, her car broke down last week and the repairs cost her $1,000. Fortunately, she did not have to go into debt, but rather had the cash available in a separate account. Most likely this is because she had been

saving for emergencies

All of the following are ways to improve your credit score except:

- Avoid closing unused accounts - Pay your bills on time - Pay down your debt - Ask to have late payments erased if you are now caught up

Henry wants to improve his credit score because he hopes to buy a home soon. Why is it so important to him to raise his score before he applies for the mortgage?

- His interest rate will be lower - His monthly payments will be lower - He wants to be able to put less money down for the down payment - He wants to qualify for the loan

RuAnne has $25,000 in her son's college fund as he begins college this year. She was investing $85.96 per month in an account that paid 6% annually. How many years has she been investing?

15 years

Frankie has never missed a payment on her credit cards or loans. She has been in her career for a few years and her industry is doing well. The bank, where she was applying for a loan, said its main concern was her capacity to handle the loan. What were they really concerned about?

Her income

Debt allows an economy to appear very large but debt also creates _________ in an economy

more risk

Ira has completed his monthly budget and notes that the difference between his monthly income and his monthly expenses is a shortage of (negative) $100. This means that Ira did what?

- Must find another source of funds, such as from his savings account, to make up for the shortage - Spent $100 more for the month than what he made in income - Must find another source of funds, such as finding an additional part-time job, to make up for the shortage - Must find another source of funds, such as using a credit card, to make up for the shortage

Neil is an aggressive loan officer. He really wants to make as money loans as possible to earn his commission. No matter what anyone's history with payments has been, or their income level, he approves auto loans at nearly 100% since the car itself has value and can be repossessed to pay off the loan. Neil is basing his decisions on auto loans almost entirely on:

Collateral

Elena earned $700 from babysitting last year. She put the whole amount in the bank. This year her account had grown to $716. What interest rate did her account earn?

The interest rate her account earned is 2.3%

You want to make sure to set realistic, _____ goals, such as paying off a small credit card, as opposed to purchasing a home with cash in the next year

Achievable Not only do goals need to be realistic, but that means they also need to be achievable. If you cannot achieve the goal, you will likely become frustrated and stop trying

Joseph grew up in a wealthy home, went to a well-known university and has a large income. Assuming he is like most people in his situation, he is more likely to ______ than is a financially disadvantaged single parents working two minimum - wage jobs to support a family.

Avoid playing the lottery and be focused on at least one goal Very wealthy individuals play the lottery and are focused on at least one goal

Quynn was applying for a car loan. The bank was very happy with his history of making payments on time and his income. Their major concern was that his job was in new housing construction and the country was heading into a recession. Which of the five Cs of credit seemed to cause the most concern for the bank?

Conditions

Veronica just received her financial aid disbursement amount of $2,000. She subtracted out her one-time expenses such as books. What should she do next?

Divide the remaining amount by the number of months she will need the money Instead of seeing a large dollar amount, it is better to divide the amount by the number of months the money must last so she has a better picture of how much she can spend each month

Rhonda put $400 in the bank and let it earn interest at 1.5% per year for ten years. When she withdrew her money, there was $1,752 in the account. This calculation involves the _______ category of time value of money

Lump sum

Ten years ago, Earl's parents threw him a big birthday party with lots of friends from school. He took all the money from his birthday cards and put it in a bank account that paid 3% interest. When he withdrew the money this week, there was $1,464 in the account. How much did he receive did he receive in birthday money ten years ago?

The amount he received for his birthday ten years ago was $1089 - N:10 - I: 3 - PV: Find - PMT: 0 - FV: 1,464

Christina's goal is to have $28,000 in her account in 11 years. Her account pays 4% interest compounded annually. About how much does she have to invest in her account today to reach her goal?

The amount she will need to invest today is $18188 - N:11 - I: 4 - PV: Find - PMT: 0 - FV: 28,000

Vicki has been investing $5,000 per year for the past 9 years. Her account has grown to $64,996. What rate of return is she earning in the account?

The rate of return that Vicki is earning is 8.96

When Katie applied for a loan at the bank, the loan officer said the final decision would not be made until after they completed their _________. He said it was important to evaluate her riskiness and then they could determine the amount they would lend and at what rate

Underwriting

Shania is in her early 20s and just started her first real full-time job with benefits. She is engaged to be married and would like to buy a home within the next three years. Shania is in the _______ stage of her financial life cycle.

Wealth protection At the Wealth Protection stage, individuals or couples begin their full-time careers, gain advanced college degrees, start earning significant money and perhaps, begin a family

The financial life cycle stages as most people go through them, in order from youngest to oldest, are:

Wealth protection; wealth accumulation; wealth distribution Most people start with wealth protection by focusing on getting their adult life started, then move on to wealth accumulation as they start earning money, and then move to wealth distribution in their retirement years

Lisa has developed her goals and is managing her budget. The next step she should take in the financial planning process is:

monitor and review

Franklin invested his $4,000 bonus at work in an account that had the potential to earn up to 10% compounded annually. He asked his advisor how risky the investment was because he was more concerned about protecting his $4,000 investment than about earning much interest. In other words, he really wanted to protect his:

principal