Personal Finance chapter 1

personal

The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk.

false

There are only three methods of calculating time value of money.

False

There are only three possible courses of action when developing alternatives for decision making.

Future value of a single amount

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

Type of investment.

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

Identify specific, realistic goals that are measurable along with a time frame and an action plan.

To develop financial goals, one should

Evaluate your alternatives.

Using the services of financial institutions or financial specialists (such as insurance agents, certified financial planners or investment advisers) to seek relevant information is done in which step in the financial planning process?

Review and revise your financial plan.

The step in the personal financial planning process that follows immediately after the step "Create and implement your financial action plan" is:

True

Retirement planning includes thinking about your housing situation, recreational activities, and possible volunteer or part-time work.

Present value of an annuity

Rhonda Miller wants to take out a 4-year loan to purchase a car. What type of computation would she use to calculate her monthly payments?

true

Risks associated with many financial decisions are difficult to identify and evaluate.

false

Risks associated with many financial decisions are easy to identify and evaluate.

income

The loss of a job or encountering an illness result in _ risk

Achieve personal economic satisfaction.

The major function of personal financial planning is to

borrowing

The problem of bankruptcy is associated with overuse and misuse of credit in the ______________ component of financial planning.

inflation

The rising or falling of prices that causes changes in buying power is referred to as ____________ risk.

A regular savings plan for emergencies.

The saving component of financial planning focuses on long-term security and includes:

Adult life cycle.

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

False

$500 on deposit at 6 percent for 6 months would earn $20.

false

A financial plan can only be created using a money management software package.

false

A financial plan is an informal report that analyzes past financial decisions.

Financial plan

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n):

Increased control of financial affairs.

An advantage of effective personal financial planning is:

Time spent comparing several brands of personal computers.

An example of a personal opportunity cost would be

Higher uncertainty about getting his/her money back.

An investor should expect to receive a risk premium for:

true

An opportunity cost is what a person gives up when a choice is made.

false

As borrowing by consumers and businesses increases, interest rates are likely to decrease

obtaining

Attempts to increase income through employment are part of the _____________ component of financial planning.

Review and revise your financial plan more frequently.

Changes in personal, social, and economic factors may require you to

intrest rate

Changes in the cost of money is referred to as ____________ risk.

Evaluating risk.

Every decision involves uncertainty, which is referred to as

True

Financial plans are created by individuals as well as by financial planners or by using a money management software package.

false

Financial plans are only created by financial planners.

Compounding

Future value computations are often referred to as

more

I can invest a dollar today and earn interest on it, then it should be worth _________ in the future.

$112.50

If Melinda Miller estimates that her $100 weekly grocery bill will increase at an annual inflation rate of 4 percent, what should her weekly grocery bill be in 3 years?

$10,400

If a $10,000 investment earns a 4 percent annual return, what should its value be after 1 year?

$15,010

If a $10,000 investment earns a 7 percent annual return, what should its value be after 6 years?

5%

If a $10,000 investment earns interest of $500 in 1 year, what is its rate of return?

9 years

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

$22,054

If you begin saving $2,000 a year at 5 percent (from age 22 to age 30 or 9 years), what will these funds grow to in this time period?

$15.00

If you deposit $500 into a certificate of deposit earning 3 percent, what would be your earnings after 12 months?

$889

If you want $1,000 in 3 years and you earn 4 percent on your savings, how much do you need to deposit now?

lower intrest rates

Increased consumer saving and investing is likely to be accompanied by:

True

Inflation is a rise in the general level of prices and it reduces the buying power of the dollar.

true

Inflation is most harmful to people with fixed incomes.

false

Inflation is most harmful to people with incomes that are expected to increase.

false

Interest earned is calculated by multiplying the principal times the time value of money.

False

Intermediate goals are usually achieved within the next year or so.

Future value of an annuity

Jennifer Rodriguez plans to attend graduate school in 5 years. She thinks that she will need a total of $32,000 to pay for school, and she wants to save money each month to reach her goal. What type of computation should she use?

To increase the effectiveness of obtaining, using, and protecting his financial resources

Jim Johnson was laid off from his job two months ago. He just received an offer for a position that pays 3/4 the salary of his old job. Why should he set up a financial plan?

Taking.

Making financial decisions related to income involves all of the following except:

Poor planning and weak money management habits.

Many Americans have money problems because of

What you give up by making a choice.

Opportunity cost refers to

false

Opportunity costs refer to money already spent.

His credit rating is below average due to missed payments.

Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt. He usually makes minimum payments on his debt and he has been late with three payments in the last year. He wants to buy a new car but was told that his interest rate on a loan would be very high. What is the most likely reason this might be so?

Future value of a single amount

Paul Davis wants to deposit a lump sum of money today for a vacation that he plans to take to Asia after he graduates from graduate school. Which formula should he use to determine the amount of money he will have available for his vacation?

True

Personal financial planning is the process of managing your money to achieve personal economic satisfaction.

True

Personal opportunity costs refer to resources, such as time, health, and energy that are given up when a choice is made.

4, 6, 2, 5, 3, 1.

Place the following steps for a personal financial plan in the proper order:1. Review and revise the financial plan2. Identify alternative courses of action3. Create and implement your financial action plan4. Determine your current financial situation5. Evaluate alternatives6. Develop your financial goals

False

Planned spending through budgeting is part of the "investing" component of financial planning activities.

Discounting.

Present value computations are also referred to as

True

Purchasing a car is an example of a durable-product goal.

false

Purchasing an appliance is an example of a consumable-product goal.

$17,460

Randy Hill wants to retire in 20 years with $1,000,000. If he can earn 10 percent per year on his investments, how much does he need to deposit each year to reach his goal?

Personal opportunity cost relating to time

Robert Brown is interested in attending a concert next weekend. Unfortunately, he is scheduled to work. If he finds a substitute for his shift so he can attend the concert, what kind of cost is he incurring?

false

Short-term goals are usually achieved within the next year or so.

false

Short-term goals are usually achieved within three years.

future value of an annuity

Steve Wilson wants to deposit $150 per month into an account earning 4 percent for the next 3 years so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have accumulated for his purchase

A time frame.

Susan Smith has a goal of saving $25 per month for a TV. Considering the SMART approach, Susan's goal lacks:

Maintaining control over credit-buying habits.

The 'borrowing' component in a financial plan relates to

Used to estimate how fast prices will double using a given annual inflation rate.

The Rule of 72 is

Either greater than or less than the inflation rate as reported by the CPI depending on the household's cost of necessities purchased.

The actual cost of living increase for a household will be

The average change in prices of a fixed basket of goods and services of urban consumers in the United States.

The consumer price index measures

Liquidity

The difficulty of converting savings and investments to cash is referred to as ____________ risk.

False

The financial activities for a young, single person will probably be the same as those for an older couple with no dependent children at home.

Determine your current financial situation.

The first step of the financial planning process is to:

long-term

The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) __________ goal.

An older single person with children.

The goal of purchasing a long-term care insurance policy would be most appropriate for:

True

The life situation of a household includes a combination of personal factors such as age, income, household size, and personal beliefs.

true

When prices are increasing at a rate of 4 percent, the cost of products will double in about 18 years.

Increases in amounts of money as a result of interest earned

Which of the following best describes the concept of the time value of money?

Save $100 a month to create a $2,400 emergency fund in 2 years.

Which of the following goals contains elements for implementation and measurement?

Purchase a house within the next 5 years with a mortgage no greater than $150,000.

Which of the following intermediate goals is stated most clearly using the SMART approach?

Forgoing wages to attend school

Which of the following is an example of a financial opportunity cost?

Food and clothing are consumable-product goals.

Which of the following is correct?

Invest $50 per month for the next 12 years for my nephew's college fund.

Which of the following long-term goals is stated most clearly using the SMART approach?

Within the next 6 months, buy a car for less than $15,000.

Which of the following short-term goals is stated most clearly using the SMART approach?

Poor credit rating

Which of the following would increase the interest rate for a loan?

Borrowers

Who is less likely to be harmed by inflation?

Durable-product

_____ goals relate to infrequently purchased, expensive tangible items.