Personal finance final

Suppose that I am trying to borrow money from you to finance my business. And suppose that I promise to repay you in two installments, one payment in two years of $5,000 and one payment in four years for $10,000. If your opportunity cost of funds is 10%, how much are you willing to lend me?

$10,962

If you deposit $1,000 each year, starting the end of first year, in an account that pays 10% interest per year, compounded annually, what will be the balance in the account after you have made ten payments, assuming you make no withdrawals from the account?

$15,937

If you deposit $1 per month in an account that pays 12% interest, compounded monthly, what will be the balance in the account after two years if you make no withdrawals?

$26.97

If you lend your roommate $50 to go out on Friday night and ask him to pay you back with simple interest in 4 years at 10%, how much will he pay you back?

$70

If I invest $100 today in an account that earns 10% per year, compounded semi-annually, how much will I have in this account at the end of twenty years if I make no withdrawals?

$704

If you lend your younger brother $500 for a tattoo of "ECU" across the middle of his forehead and he agrees to pay you back in five years at an annually compounded rate of 10%, how much will you collect at the end of year 5?

$805.5

What is the FV of $100 deposited each month at 12% interest for 5 years?

$8200

The average price of a movie ticket at the end of 1988 was $5.50 and the average price of a movie ticket at the end of 1990 was $6.00. At what annual rate did ticket prices grow?

4.4%

In 1950, Jack-in-the-Box hamburger cost $0.24. In 1994, a Jack-in-the-Box hamburger cost $2.79. What is the effective annual increase in the price of a Jack-in-the-Box hamburger from 1950 to 1994?

5.73%

Sam refuses to retire until his retirement account has a balance of at least $300,000. Sam refuses to make any more deposits in the account. The account currently has a balance of $200,000 and earns 6% per year, compounded semi-annually. How long does Sam have before he will retire?

6.68 years

The real power of the budget sheet is people can use the spending they track to:

Begin to align their budget sheet to their financial goals

Taxes on earnings:

Depends on multiple variables including how much a person makes

_____ is responsible for their career

Each individual on their own

The three "P s of career management provide a lens through which to view a career plan.

False

Career

Just as it is a good idea to plan financially and have goals; it is a good idea to plan for a __________.

Margaret is age 29 and wants to return to college to complete the degree she began eleven years ago. She cannot pay for college out of her own pocket and will need to take out student loans. She contacted her local bank and researched private student loans to determine the best loans for her. Charles suggested to Margaret that she should visit the financial aid office to speak with a financial aid counselor. Charles suggestion is good, but what is the first step Margaret should take to determine how best to pay for college?

Margaret should fill our and submit the FAFSA first

A __________ Loan is a relatively low 5% interest loan for which college students apply through their school?s financial aid office.

Perkins

To keep financial plans from failing you should:

Plan one's purchases

Almost every employer offers professional development courses or workshops on improving communication skills.

True

Just because someone is approved for a loan does not mean they can __________ it.

afford

Couples are likely to overspend, usually by accident, when they do not ___________ about their financial goals and finances.

all of the above

Most complicated investment choices and investment strategies do not make better investments than quality __________ investment choices.

all of the above

To protect children from financial failure parents should:

all of the above

Which of the following statement about Federal taxes is (are) true?

all of the above

While the financial services industry has made investing a very complicated process, it can be very __________.

all of the above

A(n) __________ is simply the same amount of money invested or paid on a regular schedule, such as weekly, monthly, or annually.

annuity

The present value of a(n) __________ allows easy calculation of what a series of regular payments to be received in the future is worth today.

annuity

The cheapest and easiest way to manage risk is:

avoidance

It is a very __________ idea for most parents to borrow against or take money out of their retirement accounts to pay for their student to attend college.

bad

How long to finance a car is a __________ between needs and the ability to afford the monthly payments.

balance

___________ sheets will show how money moves in and out of a banking account over a period of time.

buddget

__________ is not a dirty word.

budget

A __________ is the primary tool for managing personal expenses.

budget sheet

__________ only spend money on things that make them money or add value to the company.

businesses

It is important to be prepared for the next job along the way in a good __________ path plan.

career

All states have lemon laws that apply to new __________.

cars

It is a very good idea to make sure all correspondence with a collection agency is done by __________ mail.

certified

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

character

The Iraq and Afghanistan Service Grant is a(n) __________ federal student grant.

common

The power of __________ is how a small amount of money, such as a one-time deposit of $2,500, grows into a million dollars.

compounding

Sending just a resume without a __________ when applying for a job makes it likely that the application will be ignored, set aside, or trashed.

cover letter

How careers are managed is one of the biggest financial __________ most people make.

decision

Each type of insurance has its own type of __________.

deductible

A __________ is a period of time where the student?s student loan servicer will allow him or her to stop making payments.

deferment

When Ira borrows money to buy new living room furniture he has immediately bought an item that ___________ in value.

depreciates

The best way to manage one's investment risk:

diversification

A career __________ speech is a 20-30 second summary of who someone is and what they are looking to do.

elevator

A S.M.A.R.T. financial goal is specific to an multiple people.

false

A budget sheet is difficult to customize.

false

A career elevator speech is a 20-30 minute summary of who someone is and what they are looking to do.

false

A resume is an insignificant document for anyone seeking a new job.

false

A surplus on a budget sheet decreases net worth each month.

false

A surplus on a net worth sheet represents an increase in net worth on the corresponding net worth statement.

false

A wedding is a very special event and is relatively inexpensive.

false

A will cannot be changed.

false

Almost no lender looks at someone applying for a loan based on the risk presented to the lender.

false

Although there are many different kinds of time value of money questions, there are only two types of time value of money problems that are important for most people to understand.

false

Any wage earner in the 25% federal marginal tax bracket gets to keep 95 cents of every marginal dollar earned.

false

Being prepared to take advantage of a new job opportunity is not important for good career management.

false

Building an emergency fund is not a good first S.M.A.R.T. financial goal for most people.

false

Character is not one of the five C's of credit.

false

Credit does not help an economy grow.

false

Debt never comes with zero percent interest.

false

Diversification is not an investing basic.

false

Federal College Work Study is one of the most used forms of financial aid.

false

Few marriages end in either death or divorce.

false

Few new investors have trouble guarding against fear of loss.

false

Few people are familiar with sales tax even though 45 states plus the District of Columbia have some type of sales tax on purchases.

false

Good communication is about just the ability to write well or to deliver a good presentation.

false

If a 10-year-old car worth $2,500 is wrecked and it costs $4,000 to fix the car, the insurance company will reimburse the owner up to $4,000 for the repair and consider the car ?totaled.?

false

If anyone intends to earn a four-year degree, then spending the first two years at a community college may be one of the least cost-effective ways to do so.

false

Ignoring the effect taxes have on spending choices does not affect financial decisions.

false

It is called a career escalator, not a career ladder.

false

It is inconsequential to continually plan for a career.

false

It is not a good idea to be the first person a boss thinks of when he or she has a critical assignment that must be done right and must be done on time.

false

It is not expected that interest rates for consumer loans will be higher than car loans, mortgages, or student loans.

false

Money stuffed in a mattress is not subject to the time value of money.

false

Most complicated investment choices and investment strategies make better investments than simple investment choices.

false

Most people are willing to wait and save until they can afford an item.

false

On average cars appreciate about twenty percent of their value each year.

false

One easy way to control spending is never to use the envelope system.

false

One of investing?s truisms is that the greater the probability of lower returns, the more risk that is incurred.

false

Only for very rich people is their tax burden the largest annual household expense.

false

People cannot gain control of their spending simply by creating a budget and choosing where to spend their money.

false

People that are very responsible with their money and never spend more than they make never have trouble covering an emergency expense.

false

Personal property tax is paid on the value of the things one rents.

false

Properly diversifying across companies, industries, and markets does not protect from any single investment bringing down the total of all investments.

false

Pure risk can be avoided, thus total risk can be eliminated.

false

Pure risk is additional risk for little or no additional return.

false

Risk management is usually a short-range, disorganized, unplanned strategy to protect assets, families, and individuals.

false

State birth tax, for those states that have this tax, requires that parents to pay a certain percentage of all wealth that is to be transferred as part of an inheritance.

false

Student financial aid is based on many factors, but never college students? and parents? previous year?s income and assets.

false

Subsidized federal student loans do not require college students to show financial need.

false

Successful mutual fund investing requires an investor to keep an eye on the mutual fund manager.

false

The 2009 Debit Card Accountability, Responsibility, and Disclosure Act (the Debit CARD Act) changed some of the rules of the debit card industry in an attempt to protect consumers.

false

The federal government does not tax gifts.

false

The final step to maximize the return on a college investment is to make sure the student finishes his or her degree.

false

The financial services industry has made investing a very simple.

false

The less money college students pay to earn their degrees the lower the return is on their college investment.

false

The phrase ?consumer loans? is used not use any longer.

false

The present value of an annuity calculates how much a regular series of payments will be worth at some point in the future.

false

The question, ?How much money did Grandma put into an account in the beginning?? implies an annuity.

false

The real power of time value of money is that it requires writing down financial goals and gives a concrete way to track progress toward achieving them.

false

The relatively high interest of 7.9% for PLUS student loans was set many years ago and is paid on the loan from the date of the first check.

false

The task of paying the bills is a lot more than just a bookkeeping function.

false

The type of investment selected should not be linked to time horizon of the financial goal.

false

There are few opportunities to gain valuable leadership experience in most positions within most companies.

false

There are lots of advantages to raising a credit score above 720.

false

There are two types of warranties, express less and explicit.

false

To answer any time value of money question, at least two of the five pieces of information must be known.

false

Typically, when later in a career both short-term and long-term disability coverage are needed.

false

Understanding time value of money is not necessary to making good financial decisions.

false

Using a debit card to make purchases makes it difficult to categorize and track expenses.

false

Wealth is taxed at both the state and federal levels primarily through sales taxes.

false

When evaluating investment options, the one that pays the lower interest rate (or has the smaller return) also has higher risk associated with it (the chance of loss of some or all of the money invested).

false

Investing in a single asset is taking necessary risk and is compensated by the financial markets.

flase

To compete with inflation investors want their investments to:

increase at a rate greater than the rate of inflation

Any wage earner in the 25% federal marginal tax bracket gets to keep 75 cents of every __________ dollar earned.

marginal

When investing, __________ funds provide immediate diversification.

mutual

Most people do a __________ job of making a wise car purchase.

poor

The old argument that a tax refund is like having a built-in savings plan is a very __________ argument as there are better ways to save.

poor

People work in a __________ world, but live and play in a post-tax world.

pre-tax

Because a __________ is a primary marketing tool when applying for a job, it must be perfect.

resume

Eventually some potential borrowers can get to the point that they present so much __________ that no lender will loan them anything at all.

risk

To understand how to effectively manage __________ it is important to first distinguish between pure risk and speculative risk.

risk

___________ does not go away just because it is ignored.

risk

Although rarely thought of this way, for most people their __________ burden is actually their largest annual household expense.

tax

Because the federal government takes a significant portion of earned income, the key to spending wisely is to understand the ________ effect on decision making when spending money.

tax

Since __________ are infused into almost everything most people do it is important to understand what effect they have on everyday purchases and decisions.

taxes

Young couples and parents make very poor financial decisions around weddings because:

they make emotional decisions

A budget sheet is easily customized so that it makes the most sense for each individual.

true

A career elevator speech is a 20-30 second summary of who someone is and what they are looking to do.

true

A consumer line of credit is similar to a credit card, but usually involves checks provided by the bank instead of a plastic card.

true

A large tax bill can be very damaging to the budget.

true

Although tax credits are not thought of as financial aid in the traditional sense, it can mean additional money to help pay for school.

true

Although there are many different kinds of time value of money questions, there are only four types of time value of money problems that are important for most people to understand.

true

AmeriCorps, Peace Corps, and Teach for America all offer educational service awards that help pay for college while the student does something that makes a difference in the world.

true

An annuity is simply the same amount of money invested or paid on a regular schedule, such as weekly, monthly, or annually.

true

An elusive goal is to balance the use of credit and debt level so one?s personal finances are not put at too much risk.

true

Any time a major life event occurs a review of one's tax situation is in order to avoid an ?April 15th Surprise.?

true

Anyone can choose not to engage in speculative risk and so it can be avoided.

true

Arriving at a job interview late adds stress to an already stressful situation.

true

As more experience is gained with developing a budget, it becomes easier to set aside money for unanticipated or non-monthly expenses.

true

At some point most people ask, ?Where did my money go?? There are countless ways that money seems to leak out of a budget.

true

Businesses only spend money on things that make them money or add value to the company.

true

By not understanding the basic concept of the time value of money (TVM) people make poor financial decisions all the time.

true

Car loan payments can be one of those budget busters that greatly reduce the amount of money left over to spend on other things like vacations, entertainment, and even savings or retirement.

true

Car payments, credit card payments, cell phone bills, and rent or mortgage payments are almost always monthly.

true

Cars can be sold ?as-is.? There is no express or implied warranty.

true

College students should check with their advisor to make sure the courses they take or plan to take not only transfer to their college or university, but also are applied to their specific major.

true

Communication and leadership are two sets of skills almost every employer values.

true

Completing a degree in the field of a dream job increases the chances of getting the next job on that dream career path.

true

Compounding is the power of the time value of money.

true

Credit cards provide more protection from fraud and poor business practices than cash.

true

Depending upon the complexity of a parents? financial situation, an adult child can use do-it-yourself form kits, download do-it-yourself forms from online websites, or can enlist the help of an attorney to help manage their parents? finances.

true

Dinning out less is one of the easiest ways to reduce expenses.

true

Disability insurance is available to individuals and it is also available through some employers.

true

Establishing financial goals makes it easier for most people to handle their money the way that they want to as they move closer and closer to those goals.

true

Even money stuffed in a mattress is subject to the time value of money.

true

Generally, anyone planning to replace their car every five years or less may be better off purchasing lower-mileage used cars.

true

Home expenses include rent or mortgage payments, as well as any other expenses incurred for a home.

true

If a college student is not eligible for deferment but still cannot make his or her student loan payments, he or she may be eligible for forbearance.

true

In general, salespeople are notorious for convincing customers to spend money on things they did not originally intend to buy.

true

Instead of having multiple loan payments to different student loan servicers, college students and parents can consolidate their federal student loans so they have one payment.

true

Investing is for the long haul.

true

It is a very bad idea for most parents to borrow against or take money out of their retirement accounts to pay for their student to attend college.

true

Just as it is a good idea to plan financially it is a good idea to plan for a career.

true

Just like a diet is easier to stick to when there is a goal such as an upcoming class reunion or a trip to the beach, it is easier to stick with a budget when there are well defined financial goals.

true

Just like any other purchase, it is a good idea for people to shop around for a credit card that best meets their needs.

true

Many colleges, universities, and departments offer paid cooperative education programs.

true

Measurable financial goals emphasize how much.

true

Most colleges have a number of tuition payment options available, including monthly installment plans or payments.

true

Most complicated investment choices and investment strategies do not make better investments than quality simple investment choices.

true

One of investing?s truisms is that the greater the probability of higher returns, the more risk that is incurred.

true

Only a third of college students finish in four years; yet it is relatively easy to do if planned for wisely.

true

Other than a credit report, lenders do not know a lot about the borrower and, more importantly, their money personality.

true

Property taxes only affect home owners (real estate taxes), never automobile owners (personal property taxes).

true

Pure risk is additional risk for little or no additional return.

true

Tax evasion means not paying all taxes that are legally owed, such as not reporting all income or making false claims for ineligible credits or deductions.

true

Taxes are almost always one of the largest expenses on a budget.

true

Taxes on purchases include sales taxes and excise taxes.

true

The American Opportunity Credit act can reduce a parent?s and a college student?s tax expense by up to a maximum of $2,500 per student per year.

true

The Iraq and Afghanistan Service Grant is a common federal student grant.

true

The difference between a credit report and a credit score is a credit report has all information available about an individual from a financial perspective where the credit score is simply a number.

true

The five C?s of credit are character, capacity, capital, collateral, and conditions.

true

The five Cs of credit take into account both the willingness and the ability to repay a loan.

true

The future value of a lump sum calculation is used to determine what a given amount of money today will be worth at a certain point in the future.

true

The goal of making one million dollars this year or paying off the house in the next six months is probably unrealistic for most people.

true

The less money college students pay to earn their degrees the higher the return is on their college investment.

true

The number one cause of divorce is fights about money.

true

The phrase ?consumer loans? is used quite often and is sometimes confusing.

true

The power of compounding is how a small amount of money, such as a one-time deposit of $2,500, grows into a million dollars.

true

The three W s of career management provide a lens through which to view a career plan.

true

There are opportunities to gain valuable leadership experience in almost any position within any company.

true

There is not set number of checking accounts that will work for every couple.

true

To answer any time value of money question, at least three of the five pieces of information must be known.

true

To determine a comfortable car payment, the two pieces of information needed are monthly principal plus finance costs and insurance costs.

true

Two ways to reduce the cost of a wedding are to have a smaller cake and less elaborate flowers.

true

Understanding the affect taxes have on purchasing decisions is crucial to reaching personal financial goals in as short a time as possible.

true

Unnecessary risk is additional risk for little or no additional return.

true

Using a debit card to make purchases makes it easy to categorize and track expenses for the month by referring to a copy of the bank statement.

true

Using a home equity loan to pay off several credit cards does not eliminate the amount owed.

true

What do you want to do? Where do you want to do it? And who do you want to do it for? These are three easy questions to ask, but can be difficult to answer when managing a career.

true

When Ira borrows money to buy new living room furniture he has immediately bought an item that depreciates in value.

true

When evaluating investment options, the one that pays the higher interest rate (or has the greater return) also has higher risk associated with it (the chance of loss of some or all of the money invested).

true

While standards can adjust at any time, a credit score of 720 or above has historically been considered the best for most people.

true

State inheritance tax, for those states that have this tax, requires that an estate pay a certain percentage of all wealth that is transferred as part of an inheritance.

ture

It is __________ to pay the full asking price of an extended warranty when purchasing a car as these prices are negotiable.

unnecessary

__________ risk is additional risk for little or no additional return.

unnecessary

smart investors avoid:

unnecessary risk

Generally, anyone planning to replace their car every five years or less may be better off purchasing lower-mileage __________ cars.

used