PERSONAL FINANCE

Thomas has income of $3,000 per month after taxes and budgets according to the 50-20-30 rule. On average, approximately how much should Thomas budget for his financial goals?

$600

You inherit $20,000 and immediately invest it, expecting to earn 6% compounded annually. How much will you have in this account after 30 years?

114870

To the nearest dollar, how much must be deposited today in order to have $30,000 available in 12 years, assuming an interest rate of 8% and annual compounding? (use dollar sign and comma)

11913

How about if I offer to buy your used car for $5,000, but you permit me to pay nothing until 10 years elapse. In return, you want to earn 12% interest, compounded annually. How many dollars will you expect me to give to you after ten years?

15529

According to the Charles Schwab reading pertaining to retirement savings, a retiree should plan to spend no more than 4% of their total retirement account during their first year of retirement. Another way of viewing this is that the retiree needs to have a retirement account that is _____ times as large as the amount they want to withdraw annually.

25

Sam deposits $5,000 in an account that pays compound interest at the rate of 5% annually. The amount of total interest earned during the third year (to the nearest dollar) will be:

276

To the nearest dollar, how much more would you have after 25 years from depositing $20,000 now, earning 6% with quarterly compounding, versus annual compounding?

2804

Two years ago you deposited $2,500 into an interest-earning account. The value of the account today is $2,652.25. What annual interest rate is being paid?

3%

Sheri budgets according to the 50-20-30 rule, and wonders how to categorize money that she recently spend on new clothing and a weekend vacation. These expenses should be categorized with the:

30% of flexible spending

Fico scores range from

300-850

Donald saves by depositing $1,000 at the beginning of each year into an account that earns 10%, compounded annually. How much interest does Donald's account earn during its third year?

331

Some mutual funds charge a back-end load. If an investor invests $25,000 in a mutual fund which has a 2% back-end load and sells the investment three years later when the account value is $35,000, the investor will receive approximately:

34300

Test your algebra skills! What seems reasonable for the growth rate in cash dividends for a share of stock valued at $75 with an expected next year's dividend of $6 and a required rate of return of 12%?

4%

If a mortgage loan which requires monthly payments has a periodic interest rate of 0.41667%. then the interest rate quoted by the lender is closest to:

5.00%

According to surveys, which of the following percentages of Americans believe that they will never be out of debt?

50 or 25

If an individual saves $2000 a year (only $167 a month) starting when they are 25 years old and gets an 8% return, how much will she have when she reaches the age of 65

518113

If you have been promised to receive $10,000 ten years from now, what would the present value be under the assumption of a 6% discount rate?

5584

Approximately what percentage of people CANNOT afford to pay off their credit card bills each month?

60%

If you deposit $1,000 today at an interest rate of 10% compounded annually, then after five years you will have earned total interest of ____________.

610.51

If you borrow $20,000 and promise to repay the loan in four equal, annual installments at an interest rate of 10%, what is the size of your payments (to nearest dollar)?

6309

Approximately, what percentage of Americans say they feel stressed about money?

70

What seems reasonable for the value of a share of stock if next year's cash dividend is $6, the required rate of return is 12%, and the expected dividend growth rate is 4%?

75

Using the Rule of 70 as an approximation, if you deposit $10,000 today into an account with 7% annual compounding, the balance in the account after 30 years would be:

80000

To the nearest dollar, how much would you have in 25 years if you deposited $15,000 now, and it earned 7% interest compounded annually?

81411

If you deposit $200 monthly at an interest rate of 8% compounded quarterly, how much will you have after 30 years?

97652

Which of the following formulas, as discussed by Dr. Jones, will correctly determine compound interest?

A = P(1+i/n)^nt

Two brothers are comparing their initial efforts to prepare for retirement. Brother E (first name, Early) saved $20,000 when he was 26 and expects to earn an average of 8% annually until he retires at age 66. Brother L (first name, Late) saved $43,000 when he was 36 and expects to earn an average of 8% annually until he retires at age 66. Who will have more money at age 66, and by how much?

Brother E, by $1,796.

Which of the following types of savings accounts is likely to charge an interest penalty in the case of early withdrawal?

CD

Which of the following statements accurately describes earning compound interest?

Earning interst on both the original principal and on the accred interest.

In the United States, the typical person who can legitimately call himself or herself a millionaire has which of the following characteristics?

Earns less than $100,000 annually

Paul Meyer's short reading on creating S.M.A.R.T. goals provides an extremely practical way in increasing your likelihood of achievement. What specifically was Meyer referring to with the 'M' in his acronym? Goals should have:

MEASURABLE outcomes.

Using information from the article, "Why is Learning Personal Finance Important?", fill in the blanks below about why understanding finances and money is important. (please only enter a single word for each blank)

Money, choice, importance

Interpretation of the 50-20-30 budgeting rule is that these percentages represent the:

NOT average amount over time for each category. Perhaps the min percent

Which of the following types of borrowing would be considered unsecured debt?

NOT home mortgage

When compared to passively managed funds such as an index, the typical active fund manager adds to returns an amount that:

NOT substantially more than covers his/her management fees.

If budgeted expenses are expected to exceed budgeted income, which of the following may provide a solution?

Reclassify some 'needs' as 'wants

For a savings account that is receiving compound interest, which is correct?

The principal balance is growing each year

A credit score is a rating of prior payment history.

True

Self awareness is:

a conscious, intentional knowledge and thought of one's own character and behavior

When creating your budget, it is important that savings be considered as:

a fixed 'expense,' each month

"I plan to be on my way to financial independence by saving my first million dollars by the time I am 20 years beyond my bachelor's degree." This is an example of a goal that, according to S.M.A.R.T., likely satisfies:

all

Surveys indicate that the majority of U.S. households live from paycheck to paycheck. To avoid this, you should:

all

Reassessing characteristics such as the quality, style, or newness of certain items (for example, a cell phone) may be necessary in order to:

all answers

The rationale for beginning your budget creation with 12 months of payment history would be to:

all of these answers are correct

According to Mila Baker, the concept of "financial regret" refers to:

an expense that you wish you would not have made.

Regarding the constant dividend growth model for valuing stock, which of the following changes would be likely to increase the stock price?

an increase in the level of the cash dividend

At the time of maturity for a bond, the bondholder receives:

an interest payment plus return of the principal.

If an investor has decided to 'short' a stock rather than 'going long,' the most that the investor can lose in this strategy is:

an unlimited amount!

When are the contributions to a Roth 401k taxed?

at the time of the deposit

In a traditional 401k retirement account, the contributions are taxed:

at the time they are withdrawn

As discussed in the reading, the ability to fulfill your dreams and purpose is possibly the best answer to why we should:

be vitally concerned with learning personal finance.

Overconfidence

believing that we are unique and better than everyone else

Placing a reminder that a restaurant accepts credit cards on the tables:

caused patrons to spend more

As the discount rate (or interest rate) decreases, the future value of a present amount will:

decrease

For any given discount rate, as a present value is compounded forward for fewer periods, the future value will:

decrease

In order to become a millionaire, it is most likely necessary for you to have:

developed and maintained good saving habits

Compared to annual compounding, if the compounding frequency is monthly, then the interest rate will be __________________ and the number of years will be _______________________.

divided by 12; multipled by 12

A good reminder in budgeting is that, if you can afford to make the monthly payment each month, then it is acceptable to take on the debt.

false

Although many people have learned this lesson the hard way, the majority of people in the U.S. pay their credit card balances in full each month.

false

As we spend money and wear down mentally it becomes easier to resist temptation and spending as we "just don't care anymore."

false

It is fairly obvious that one can utilize too much of their credit limit (leading to high interest expense and/or default) but it is not possible to utilize too little of one's credit limit.

false

The non-negotiable payments in your monthly budget can be considered the:

fixed payments, such as rent.

Learning about money:

gives you knowledge and understanding to make smart money choices.

If you are a motivated person and really into the math, which plan might you follow?

highest rate first

In what decade of your life do you need to begin investing for retirement in order to commit only about 10% of your income to that investing?

in your 20s

If a corporation announces an increase in the level of its cash dividend, what will be the likely effect on the corporation's stock price?

increase

Most investors would consider an investment in corporate bonds to be ___________ risky compared to an investment in common stocks.

less risky

According to "The Millionaire Next Door," if adult children are being financially supported by parents, those adult children are:

lesslikely to mature financially.

Late payments will _____ your credit score

lower

If you were recommending a method to the general public, most of whom are not math people and prefer encouragement, which method might you recommend?

lowest balance first

A quick and easily stated goal for this course is for you to learn how to achieve "financial independence." However, that goal:

may mean different things during different stages of your life.

Betting 'double or nothing' on each hold in a round of gold may not be a realistic exercise, but it clearly points out that starting to save early will:

ncrease the number of doublings during your career.

Which of the following characteristics makes it easier to determine a value for gold?

neither of these characteristics make it easier to value gold

According to Dave Ramsey, a credit score IS an indicator of who is winning financially.

no

You expect to receive $5,000 from a relative, one year from now. If you have calculated the present value to be precisely $4,464.29, what is your discount rate?

not 8%

Other things equal, an increase in the frequency of compounding will:

not decrease the future value

For a given amount borrowed, an increase in the number of periods for repayment will:

not decrease the total amount

Assume that one of your friends owes you precisely $2,000, to be repaid two years from today. Which of the following will cause the present value of this amount to increase?

not more frequent discounting

Many investors choose to invest in gold. The investment record of investing in gold is:

not very attractive over long periods

We have spent a fair amount of time on the subject of compound interest, but which of the following provides the best description? Compound interest refers to:

paying interest on both the principal as well as on the previously paid interest.

Under which strategy do you pay the most interest?

paying minimum payments

Which of the following has the highest weight in the credit rating process?

payment history

Telling yourself "I'll start saving tomorrow" is an example of:

procrastination

If you are developing your budget and find that expenses exceed income, one process to overcome this would be to:

reassess some "needs" to become "wants."

Representative Bias

see an event as similar to one we are thinking about

The type of investment in which you are purchasing a small, partial ownership of the company is a

share of stock

Perhaps the single most important rule of successful budgeting is to:

spend less than your income

An investor who has been saving for retirement in a 401k account withdraws a portion of the account (less than $10,000) at a time when the investor is 58 years old. The investor should expect to pay:

taxes and a penalty on the entire withdrawal

Other things equal, what happens in the present value of an annuity formula if the discount rate increases?

the present value of annuity increases

If an investor has decided to short a stock, the investor anticipates that:

the stock is expected to decrease in value.

The premise behind the 'snowball effect' of debt reduction is:

to first pay the debt that has the lowest balance

If an investor expects that his/her tax rate will be much lower during retirement than during the working career, a ______________ 401k probably makes more sense.

traditional

High levels of debt reduce cognitive functioning in other parts of our life.

true

Over the long term, the level of management fees experienced by an investor can have a very large impact on his or her total rate of return.

true

The difference in total interest paid between paying the highest rate first versus the lowest balance first is often minimal. (especially if the rates are all similar)

true

The less frequently that interest is compounded during a year, the lower will be the future value.

true

An experiment asking MBA students how much they would be willing to pay for baseball tickets suggested those willing to pay with a credit card would pay ___

twice as much

Anchoring

use an initial number as a reference point

In the stock valuation model, as the dividend growth rate increases, so does the:

value of the share of stock

Perhaps the best way to define your "credit attitude" is by asking:

whether you truly have a desire to repay the full debt