Personal Finance Test 2

A well-educated and trained employee is virtually guaranteed job security by today's employers. Therefore, he or she doesn't need to worry about keeping his or her skills current. Select one: True False

False

According to a resumedoctor.com recruiting survey, the most common mistake made by job interviewees is talking too much. Select one: True False

False

Annual public school tuition and fees are three times more expensive than private school tuition and fees. Select one: True False

False

Commission-only planners charge fees and collect commissions on products they recommend. Select one: True False

False

Most individuals will reach their financial goals without planning or budgeting. Select one: True False

False

Once a sound financial plan is in place, there should be no need to ever change it. Select one: True False

False

The economic downturn that began in 2008 demonstrated that many Americans have sufficient emergency funds. Select one: True False

False

The most important aspect of choosing a career is the amount of income that career will generate over your lifetime. Select one: True False

False

Today, most Americans over the age of 65 have adequate savings and income available to them during retirement. Select one: True False

False

When comparing two different investment opportunities the investor should always choose the investment that minimizes the total amount of taxes paid. Select one: True False

False

Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three years, their gross household income is $5,700 per month, and they receive $95 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings account: $3,200 Checking account: $1,800 Credit card balance: $3,000 Car loan balance: $18,000 Car market value: $15,000 Furniture market value: $4,000 Stocks and bonds: $15,000 Assuming that they have no current bills other than those that are listed, what is their current ratio? Select one: a. 0.79 times b. $5,000/$3,000 c. 2 times d. Not enough information available

b. $5,000/$3,000

Alysha has $500 in monetary assets and $5,000 in current liabilities. What is her current ratio? Select one: a. .100 percent b. .10 times c. 100 percent d. 10 times

b. .10 times

Sarah has $15,000 in monetary assets, $48,000 in annual living expenses, a $20,000 balance on her car loan, and $60,000 of equity in her house. What is her month's living expenses covered ratio? Select one: a. 1.125 times b. 3.75 times c. 3.0 times d. There is not enough information to answer this question.

b. 3.75 times

________ is the process of identifying a job that you feel is important and that will lead to the kind of lifestyle you desire. Select one: a. Financial planning b. Career planning c. Goal planning d. Retirement planning

b. Career planning

How would an income statement help you create a financial plan? Select one: a. Spot potential areas of gambling. b. Determines whether you are earning more than you spend c. Determines your net worth d. Allows you to track future income

b. Determines whether you are earning more than you spend

Matthew bought a used car last month for $2,400. He just found out he needs a new transmission that will cost $2,400 to install. He is asking you for advice as to what he should do. What financial principle would you use to base your advice on? Select one: a. Waste not, want not, smart spending matters. b. Mind games, financial personality, and your money c. Protect yourself from major catastrophes. d. None of these would be correct.

b. Mind games, financial personality, and your money

Which type of expenditure would probably be the hardest for an individual to track? Select one: a. Credit card b. Cash c. Checks written d. Automatic payments e. Direct deposits

b. cash

Your ________ is found by dividing monetary assets by current liabilities and is a good measure of liquidity. Select one: a. debt ratio b. current ratio c. net worth d. net cash flows

b. current ratio

The personal financial planning process consists of ________ steps. Select one: a. three b. five c. seven d. ten

b. five

An expenditure over which you have no control and are obligated to make is a Select one: a. repeating expenditure. b. fixed expenditure. c. constant expenditure. d. long-term expenditure. e. contractual expenditure.

b. fixed expenditure.

According to a recent Rockefeller Foundation report, the financial issue Americans worry about the most is the ability to pay Select one: a. for medical expenses. b. for retirement expenses. c. debt expenses. d. home mortgage expenses.

b. for retirement expenses.

According to a recent Rockefeller Foundation report, the financial issue Americans worry about the most is the ability to pay Select one: a. for medical expenses. b. for retirement expenses. c. debt expenses. d. home mortgage expenses.

b. for retirement expenses.

In order for your financial plan to be realistic and attainable it needs to be based upon your Select one: a. budget. b. income level. c. number of tax deductions, exemption, exclusions, and credits. d. balance sheet. e. None of these.

b. income level.

The term that considers having money readily available when you need it is the concept of Select one: a. flexibility. b. liquidity. c. equity. d. solvency. e. None of these.

b. liquidity.

George and Betty, a middle-aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement. Gross monthly income: $8,000 Income taxes withheld monthly: $2,300 Monthly interest income from investments: $100 Monthly insurance payments: $700 Monthly housing expenses: $4,500 Monthly food expenses: $800 Miscellaneous expenses: $400 What is their current savings ratio? Select one: a. 10.3 percent b. negative 10.3 percent c. zero d. None of these

b. negative 10.3 percent

According to a 2014 resumedoctor.com recruiting survey, the most common mistake made by job interviewees is Select one: a. shaking hands softly. b. talking too much. c. dressing inappropriately. d. arriving late to an interview

b. talking too much.

Without recognizing ________ it is impossible to understand compound interest, which allows investments to grow over time. Select one: a. that taxes affect personal finance decisions b. the time value of money c. the importance of liquidity d. that risk and return go hand in hand

b. the time value of money

Being financially secure involves balancing what you earn with Select one: a. your investments. b. what you spend. c. your retirement plans. d. your current level of debt.

b. what you spend.

Being financially secure involves balancing what you earn with Select one: a. your investments. b. what you spend. c. your retirement plans. d. your current level of debt.

b. what you spend.

Suppose that Cathy's assets include an automobile worth $10,000 and a checking account with a $5,000 balance, while her liabilities include a student loan balance of $2,000 and a car loan balance of $8,000. What is her net worth? Select one: a. $10,000 b. $8,000 c. $5,000 d. $2,000

c. $5,000

Hector and Maria Montez are trying to figure out their financial health. They will pay off their car loan in three years, their gross household income is $3,800 per month, and they receive $75 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings account: $1,200 Checking account: $800 Credit card balance: $1,000 Car loan balance: $12,000 Car market value: $8,000 Furniture; market value: $2,000 Stocks and bonds: $10,000 What is their debt ratio? Select one: a. 169 percent b. 1.69 times c. 0.59 percent d. 0.59 times e. 2 times

c. .59 percent

Which of the following is one of the five basic steps in personal financial planning? Select one: a. Evaluate your personal health. b. Define your career goals. c. Develop a plan of action. d. Let an accountant review your plan.

c. Develop a plan of action.

Which statement is true about managing personal finances? Select one: a. The ability to manage finances is a skill with which you are born. b. Personal finance courses are commonly offered in high school. c. Financial difficulties can be a major cause of marital problems. d. Personal financial management is not a skill worth learning.

c. Financial difficulties can be a major cause of marital problems.

Which of the following statements applies to obtaining an undergraduate college degree? Select one: a. They are expensive and rarely pay off in increased earnings. b. There is no relationship between personal wealth and earning a college degree. c. It may be the single best investment you will ever make. d. All of these.

c. It may be the single best investment you will ever make.

While each person's financial plan is different, some common factors guide all sound financial plans. Which of the following is one of the common factors? Select one: a. Sustainability b. Illiquidity c. Protection d. Maximization of taxes

c. Protection

A plan for controlling and forecasting your cash inflows and cash outflows is called a(n) Select one: a. income statement. b. balance sheet. c. cash budget. d. statement of changes in financial position. e. None of these.

c. cash budget

The concept that emphasizes that people should not put all their eggs in one basket is Select one: a. the time dimension of investing. b. the curse of competitive investment markets. c. diversification reduces risk. d. the farmers analogy. e. liquidity is first.

c. diversification reduces risk.

________ planners charge a fee that is reduced by the amount of the commissions they earn. Select one: a. Fee-only b. Fee-and-commission c. Fee-offset d. Commission-based

c. fee-offset

Financial planning might not help you earn more, but it can help you use the money you do earn to achieve your Select one: a. life's purpose. b. dreams. c. financial goals. d. desired lifestyle.

c. financial goals.

Financial planning might not help you earn more, but it can help you use the money you do earn to achieve your Select one: a. life's purpose. b. dreams. c. financial goals. d. desired lifestyle.

c. financial goals.

If your liabilities are greater than the value of your assets you are considered Select one: a. unstable. b. bankrupt. c. insolvent. d. unbalanced.

c. inslovent

One of the most important factors to remember when hunting for your first job is to Select one: a. seize every opportunity. b. wait patiently. c. start early. d. procrastinate.

c. start early

Your net worth, or your general level of financial worth, is found by Select one: a. subtracting your expenses from your income. b. dividing your monetary assets by your current liabilities. c. subtracting your liabilities from your assets. d. dividing monthly debt (less a mortgage payment) by monthly income. e. subtracting current liabilities from monetary assets.

c. subtracting your liabilities from your assets.

According to a resumedoctor.com recruiting survey, the most common mistake made by job interviewees is talking too much. Select one: True False

True

According to the Keown book, Mint and Level Money are two of the best smartphone apps for tracking your spending and setting up a budget. Select one: True False

True

All else being equal, an increase in inflation will cause investors to require a higher rate of return on an asset. Select one: True False

True

An estimate of your anticipated after-tax income available for living expenses is commonly called take-home pay. Select one: True False

True

Diversification allows you to reduce risk. Select one: True False

True

Financial planning is an ongoing process. As your financial situation and position in life change, the plan changes. Select one: True False

True

It is important to take a close look at the 2008 economic downturn as a means to highlight how vulnerable American's finances are. Select one: True False

True

One purpose of financial planning is to help you legally reduce the amount of taxes you have to pay on your earnings. Select one: True False

True

Salaries vary for individuals working in similar jobs for different companies, but one thing is clear: the more specialized skills and training a job requires, the higher the job tends to pay. Select one: True False

True

The first steps in career planning are conducting a self-assessment and developing an understanding of what sort of lifestyle you wish to lead. Select one: True False

True

To determine your net worth, subtract your liabilities from your positive net equity. Select one: True False

True

While each person's financial plan is different, some common factors guide all sound financial plans: flexibility, liquidity, protection, and minimization of taxes. Select one: True False

True

Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle stating that a person can expect to earn additional return for increasing his or her investment risk is the ________ principle. Select one: a. "risk and return go hand in hand" b. "mind games, financial personality, and your money" c. "nothing happens without a plan" d. "the best protection is knowledge"

a. "risk and return go hand in hand"

If the people below, with their respective current ratios, were to lose their jobs today, which one would have more time and more choices until he or she found another job? Select one: a. Christy has a current ratio of 0.85 times. b. Rick has a current ratio of 2.5 times. c. Andrew has a current ratio of 1 time. d. There is not enough information to answer this question.

a. Christy has a current ratio of 0.85 times.

What is the main factor in determining your potential income level? Select one: a. Education and skills that you have attained b. Who you know in your company administration c. Your age and years of employment d. The size of the company you work for

a. Education and skills that you have attained

According to the Keown book, the most popular personal financial management program for the PC is Select one: a. Intuit's Quicken. b. MoneyGuidePro. c. Financial Peace. d. Crown Financial.

a. Intuit's Quicken.

What piece of advice might you give to someone for whom the act of saving is an afterthought? Select one: a. Pay yourself first. b. Money isn't everything. c. Don't put all your eggs in one basket. d. None of these.

a. Pay yourself first.

In 2008, the Bear Stearns Company collapsed could not be saved and was sold to JP Morgan Chase for $10 per share, a price far below its pre-crisis 52-week high of $133.20 per share. Prior to the collapse, many of the company's employees had all of their retirement money invested only in Bear Stearns common stock. This was a very risky financial strategy for just such a reason: What if the company dissolves? What financial principle from Chapter 1 did they need to understand better? Select one: a. Risk and return go hand in hand. b. Nothing happens without a plan. c. The time value of money d. Stuff happens, the importance of liquidity.

a. Risk and return go hand in hand.

Suppose that you have been operating an online marketing business out of your home, and the business has recently expanded beyond belief. Since you have neglected your personal finances for some time, what would you do as a first step? Select one: a. Separate your personal finances from the business finances. b. Combine your personal finances and business finances to save time. c. Rent a separate office for your business activities. d. Purchase a software program to handle both your business and personal finance at the same time.

a. Separate your personal finances from the business finances.

Which basic step to personal financial planning should be considered when examining your current financial situation? Select one: a. Step 1 b. Step 2 c. Step 3 d. Step 4

a. Step 1

Which of the following adheres to the financial principle "just do it?" Select one: a. The amount you can spend is what's left after you put aside your savings. b. Pay yourself last. c. It's much easier to save than to spend. d. All of these

a. The amount you can spend is what's left after you put aside your savings.

Many people who signed up for adjustable-rate mortgages during the sub-prime mortgage debacle were no longer able to afford their payments. Many of these people were misled by their lenders. Which financial principle from Chapter 1 most applies? Select one: a. The best protection is knowledge. b. Mind games, financial personality, and your money c. Stuff happens, or the importance of liquidity. d. The time value of money

a. The best protection is knowledge.

An expenditure over which you have no control, are obligated to make, and is generally at a constant level each month is called a ________ expenditure. Select one: a. fixed b. flexible c. stationary d. discretionary e. None of these

a. fixed

According the Keown book, which Web-based personal financial planning website is known as "the best free way to manage your money?" Select one: a. Mint.com b. Levelmoney.com c. YahooFinance.com d. WSJ.com

a. mint.com

Probably the most important determinant of your future earnings will be Select one: a. your highest level of education obtained. b. the size of the company where you will work. c. your seniority with your company. d. joining a labor union.

a. your highest level of education obtained.

The concept of diversification is illustrated by the old saying Select one: a. "Sell eggs high and buy them low." b. "Don't put all your eggs in one basket." c. "Keep all your eggs in one basket." d. "Several baskets of eggs are better than one."

b. "Don't put all your eggs in one basket."

George and Betty, a middle-aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement. Gross monthly income: $8,000 Income taxes withheld monthly: $2,300 Monthly interest income from investments: $100 Monthly insurance payments: $700 Monthly housing expenses: $4,500 Monthly food expenses: $800 Miscellaneous expenses: $400 What is George and Betty's net income? Select one: a. $1,700 b. $(600) c. $(500) d. $1600 e. Not enough information available to answer question

b. $(600)

Maiko lost her job and she was forced to sell a rental property because she did not have other funds (liquid, emergency, etc) available to meet her financial obligations. What financial principle best applies to this situation? Select one: a. The time value of money b. Waste not, want not-smart spending matters. c. Mind games, financial personality, and your money d. Stuff happens, the importance of liquidity.

d. Stuff happens, the importance of liquidity.

A strong record-keeping system allows you to Select one: a. track expenses. b. know exactly how much you're spending. c. know where you're spending your financial resources. d. All of these.

d. all of these

Which of the following is the best type of record-keeping system to use in maintaining financial records? Select one: a. Manual method with pencil and notebook b. Computer software c. Apps d. all of these

d. all of these

Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle that considers the importance of insurance is the ________ principle. Select one: a. agency problem -beware the sales pitch b. all risk is not equal c. time value of money d. protect yourself against major catastrophes e. None of these

d. protect yourself against major catastrophes

A vehicle leased in your name is an example of a tangible asset that you would list on your balance sheet. Select one: True False

true

Net income is used in calculating one's net worth. Select one: True False

false

Bradley went shopping today and used his American Express credit card to buy a new pullover sweater. He used his bank debit card to pay for a video game and bought some snack food with cash. Which of these purchases are difficult to track and monitor on his budget? Select one: a. The pullover sweater is difficult to track because it costs more than what he budgeted for clothing this month. b. The video games are difficult to track because he did not add a budget category for electronics. c. The snacks are difficult to track because cash transactions don't leave a paper trail. d. Both The pullover sweater is difficult to track because it costs more than what he budgeted for clothing this month and The video games are difficult to track because he did not add a budget category for electronics

c. the snacks are difficult to track because transactions dont leave a paper trail

Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three years, their gross household income is $5,700 per month, and they receive $95 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings account: $3,200 Checking account: $1,800 Credit card balance: $3,000 Car loan balance: $18,000 Car market value: $15,000 Furniture market value: $4,000 Stocks and bonds: $15,000 What is their debt ratio? Select one: a. 123 percent b. 3 times c. 1.23 times d. 0.54 percent

d. .54 times

Which of the following falls under the category of mind games, financial personality, and your money? Select one: a. The sunk cost effect b. Mental accounting c. Viewing your tax refund as "mad money" d. All of these

d. All of these

While reviewing your current financial plan, you discover that you most likely won't achieve your long term financial goals. What should you do now? Select one: a. Look at increasing your income. b. Look at cutting back on your expenses. c. Look at revising your goals. d. All of these would be realistic things to do.

d. All of these would be realistic things to do.

A strong record-keeping system allows you to Select one: a. track expenses. b. know exactly how much you're spending. c. know where you're spending your financial resources. d. All of these.

d. All of these.

If liquid funds are not available, an unexpected need, such as a job loss or injury may force you to Select one: a. cash in a longer-term investment. b. borrow money fast. c. take on unexpected debt repayments. d. All of these.

d. All of these.

Jessica is very proud of herself for having $5,000 in her savings account that pays 4 percent interest. She currently has a balance of $2,300 on her credit card account that charges 21 percent interest. Jessica thinks she is making a wise financial decision by keeping her money in her savings account instead of paying off her credit card balance. What financial principle from Chapter 1 would you use to give her good advice? Select one: a. Mind games, financial personality, and your money b. The time value of money c. Taxes affect personal financial decisions. d. Both Mind games, financial personality, and your money and Taxes affect personal financial decisions

d. Both Mind games, financial personality, and your money and Taxes affect personal financial decisions

The term "fair market value" refers to how the price of an asset has changed since its original purchase. Select one: True False

false

Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three years, their gross household income is $5,700 per month, and they receive $95 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings account: $3,200 Checking account: $1,800 Credit card balance: $3,000 Car loan balance: $18,000 Car market value: $15,000 Furniture market value: $4,000 Stocks and bonds: $15,000 What is their month's living expenses covered ratio? Select one: a. 2 months b. 1.23 months c. 1.75 months d. Not enough information to answer this question

d. there is not enough information to answer this question

Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle that considers the value of compound interest is the ________ principle. Select one: a. all risk is not equal b. pay yourself first c. competitive inflation adjustment d. time value of money e. None of these

d. time value of money

A solid understanding of personal finance will Select one: a. enable you to protect yourself from an incompetent investment advisor. b. allow you to take advantage of changes in the economy. c. give you the ability to make intelligent investments. d. help you understand the importance of planning for your financial future. e. All of these.

e. All of these

What elements are found in an effective financial plan? Select one: a. Flexibility to allow for changes in your situation b. Sufficient liquidity to meet unexpected needs c. Insurance protection from catastrophic events d. Helps you legally reduce the amount of taxes you owe e. All of these

e. All of these

You need to review your progress and reevaluate and revise your plan (Step 5) because Select one: a. your financial needs change over the course of your life. b. your employment situation changes over time. c. your net worth changes over time. d. your family situation might change over time. e. All of these are good reasons to periodically review your financial plan.

e. All of these are good reasons to periodically review your financial plan.

Evaluating your financial health consists of Select one: a. preparing a personal balance sheet. b. determining what you are worth. c. preparing a personal income statement. d. determining where your money comes from and where it goes. e. All of these.

e. All of these.

From the Keown book, you have learned that a budget Select one: a. can be simple or sophisticated. b. is a process of setting spending goals for the upcoming month or year. c. is a plan for controlling cash inflows and outflows. d. includes both actual and estimated expenses. e. All of these.

e. All of these.

In Chapter 1, Principle 3 espouses the time value of money. Why is this principle so important to financial planning? Select one: a. The principle allows us to determine how much money we will need to achieve our future goals. b. The principle shows us how inflation impacts our money over time. c. The principle helps us determine our savings needs today, in order to meet our future retirement goals. d. The principle shows us how important time and interest rates are to the accumulation of wealth. e. All of these.

e. All of these.

Personal financial planning can help you to Select one: a. deal with unplanned health issues. b. minimize your tax payments to Uncle Sam. c. minimize your chances of personal bankruptcy. d. have enough money for a comfortable retirement. e. All of these.

e. All of these.

Suppose you have just retired, have accumulated many luxury goods over the years, still owe a mortgage on your home, still have unpaid travel expenses on your credit cards, and have helped your adult children financially. Your spouse has recently passed away, and you miss his/her contribution to the household income. Which step in the personal financial planning process have you neglected? Select one: a. Develop your financial health. b. Define your financial goals. c. Develop a plan of action. d. Implement your plan. e. Review your progress, reevaluate, and revise your plan.

e. Review your progress, reevaluate, and revise your plan.

Which of the following financial documents would you to use to create a financial plan? Select one: a. Balance sheet b. Income statement c. Budget d. Cash budget e. All of these

e. all of these

Which of the following is a relevant question to ask a financial planner? Select one: a. What are your credentials and professional designations? b. Would you provide us with references? c. Would you show us a similar financial plan you have done for someone else? d. Will you provide us with a written estimate of your services and their cost? e. All of these

e. all of these

Which of the following might be found on an income statement? Select one: a. Wages and salaries b. Interest and dividends c. Income taxes paid d. Payroll taxes paid e. All of these

e. all of these

The economic downturn that began in 2008 resulted in negative consequences, including Select one: a. a dramatic increase in unemployment rates. b. disrupted financial markets. c. difficulty for consumers to borrow money from lending institutions. d. all consumers increased their wealth. e. only a dramatic increase in unemployment rates, disrupted financial markets, and difficulty for consumers to borrow money from lending institutions are correct.

e. only a dramatic increase in unemployment rates, disrupted financial markets, and difficulty for consumers to borrow money from lending institutions are correct.

As long as a financial planner is certified you need not worry about his ability to provide you with the correct financial plan for your situation. Select one: True False

false