Finance ch 1

The demographic that is most affected by inflation is

Persons on fixed incomes

A series of equal deposit or payment is called AN

Annuity

Bank and trust received an interest rate of 5%. The current inflation rate is 8%. Are they keeping up with inflation rate?

Bank and trust is losing 3% of buying power

Inflation is a rise in the general level of prices. In Times of inflation, the buying power of the dollar decreases. For example, if prices increase 5% during the last year, items at previously cost $100 with no cost___.

$105

Future value isThe amount to which current savings will grow based on a certain interest-rate and a certain time period. For example, $100 deposited into a 6% account for one year will grow to___.

$106. Future value = $100 + ($100 X 0.06 X 1 year) =$106

Philip has an investment of $200 that is expected to earn 10% annually. How much will the investment be worth at the end of the second year if the investment earns interest compounded annually?

$242 1st year $220 ( 200 X .1) 2nd year $242 ( 220 X .1)

If you deposit $500 per year in an account for six years at 9% how much will you have in the account?

$3,762 FV= annuity (1+i)^n -1/i FV= 500 (1+ .09)^6 -1 /.09

John has an interest rate of 7.2% in a savings account. Using the rule of 72 his money will double in___years.

10

Alex has an interest rate of 3.6% on a savings account using the rule of 70 to his money will double in___years

20 - (72÷3.6%)

The rule of 72 provides a guideline to determine how long it takes your money to double. This rule can also be used to determine your earning rate. If your money is expected to double in 12 years, what is your rate of return?

6% - (72÷12 years equals 6%)

Which of the following specialized Financial goals and activities are best suited for young, unmarried couples with dual income and no children?

Communicating budgeting attitude differences. Considering a home purchase with a property agreement. Discussing and sharing joint and individual financial goals.

When the level of exports of the US made products is lower than imported goods they will typically cause a domestic money supply to:

Decrease

Time value of money

Increase in an amount of money as a result of interest earned

Which of the following activities would be best suited for young couples with children under the age of 18?

Purchasing life insurance for care of dependence. Carefully managing credit. Naming guardians of your children in your will.

Which of the following activities would be best suited for single adults age 50 or older?

Purchasing long-term care coverage. Reviewing will and estate plans. Reviewing Retirement facilities.

Personal values have a direct influence on such decisions as spending now versus saving for the future

True

The federal reserve attempts to maintain an adequate money supply

True

What are the four situational influences for financial decisions

age number and age of household members marital status employment situation

Bankruptcy

A set of federal laws allowing you to either restructure your debts or remove certain debts.

The main purpose of the federal reserve is to:

Act as the central bank and maintain an adequate money supply

Interest rates are affected by the following

Demand for goods and services supply of goods and services

The rule of 72 is used to estimate the time it would take for your money to

Double

To find out how fast prices (or your savings) will double, use the rule of 72: just divide 72 by the annual inflation (or interest-rate) rate

Example: an annual inflation rate of 4%, means prices will double in 18 years (72÷4 = 18). Regarding savings, if you're in 6% your money will double in 12 years (72÷6 = 12).

The risk premium includes the following factors

Expected inflation length of time interest rates uncertainty of getting your money back

Which of the following activities would be best suited for single parents with children under the age of 18?

Saving money for college. Purchasing insurance for health, life and disability insurance. Naming guardians of your children in your will.

Which of the following activities would be best suited for couples that have household with multiple generations?

Using dependent care services. Providing for the handling of the finances of the elderly if they become ill. Obtaining long-term care, life, and disability insurance coverage.

Opportunity cost

What a person gives up by making a choice

Tom needs a new washing machine. A new one cost $400. Decide to save the money and buy one next year. All other factors being equal if inflation is 4%, the washing machine will cost___next year.

$416 (400 X .04= 16)

Which of the following activities would be best suited for a single adults aged 18 to 35?

Considering home purchase for tax benefit. Establishing financial independence. Purchasing disability insurance.

Hidden inflation exist when:

The cost of necessities rise at a higher rate than nonessential items

True or false money management is the day today financial activities necessary to manage current personal economic resources while working towards long-term financial security

True

Which of the following is not true? Cpi is a totally Accurate measure of insulation in the US. Inflation rates can be deceptive. Consumer price index measures change in the price of a basket of goods and services. Hidden inflation is one cost of necessities rises at a higher rate than nonessential items.

CPI is totally accurate measure of inflation in the US, is not true.

The measure of the average change in prices urban concert pay for a Fixed basket of goods and services is called the

Consumer price index

A rise in general levels of prices is called

Inflation

Which of the following activities would be best suited for young couples with dual income and no children?

Making tax deferred contributions for retirement. Coordinating insurance coverage. Developing investment plans.

Which of the following activities would be best suited for Older couples 50+ with no dependent children at home?

Planning for possible part-time work. Reviewing estate plans and financial assets. Changing household budgets prior to retirement.

If you desire to have $10,000 in savings eight years from now, what amount would you need to deposit into an account that earns 5%?

Refer to exhibit 1-c (5% period 8 is 0.677) $10,000 X 0.677 = $6,7770

Reports show that $5 billion worth of product or being imported well $3 billion worth of products are being exported. What does this mean for the US domestic money supply?

The imports are greater than it exports by $2 billion this means that there's more money exiting the US domestic money supply

Do you want to buy a new watch that cost $100. He decided to wait a year. All other factors being equal, if inflation is 4%, the watch will cost___next year.

The watch will cost $104 next year. 100(1.04)= 104

Amount in savings X Annual interest rate X Time period = interest

Three items that are multiplied to obtain the amount of interest

Values are the ideas and principles that a person considers correct desirable and important

True

The stages in family situation and financial needs of an adult are called the:

Adult life cycle

Future

The amount to much current savings will increase based on Easter an interest-rate and a certain time.; Also referred to as compounding

Managing risk is not a financial planning activity

False