Personal Financial Planning EXAM 1

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True or False: A budget is a detailed statement of what income and expenses occurred over a past period.

False

True or False: A savings account may be a useful tool in managing everyday household transactions.

False

True or False: Approximately 50 percent of Americans prepare a detailed household budget.

False

True or False: Average propensity to consume refers to how much of your money you plan to save in your financial plan.

False

True or False: FDIC covers stocks, bonds, and mutual funds purchased at banks.

False

True or False: If Lois has $2,000 in checking, $50,000 in a money market mutual fund, and $75,000 in certificates of deposit (all individual accounts) at her local bank, her accounts would be insured through FDIC for $77,000.

False

True or False: If you are married, you can legally file a single tax return.

False

True or False: Interest you earned on your savings account would be an entry on your personal balance sheet.

False

True or False: Internet-only banks typically pay lower interest rates on savings than traditional banks.

False

True or False: Money market mutual funds are insured up to $250,000 by the FDIC if purchased at an insured bank.

False

True or False: One's marginal tax rate is typically lower than one's average tax rate.

False

True or False: Saving accounts are sometimes referred to as demand deposits.

False

True or False: Social security taxes are deducted from all wages and salaries earned in a year.

False

True or False: The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.

False

True or False: The equity in your home is the difference between the loan balance and the purchase price.

False

True or False: The income and expense statement looks forward in time, while a budget is backward looking.

False

True or False: The minimum denomination for Treasury bills is now $1,000.

False

True or False: The rate of return on cash or other liquid assets is relatively high compared to other types of investments.

False

True or False: There is no limit on the amount of social security tax withheld annually.

False

Explain the difference between deductions and credits on your taxes.

Tax credit deals with the taxes you owe and tax deductions will come from the money that you make.

True or False: A balance sheet is like a photograph of your financial condition, while an income and expense statement is like a motion picture.

True

True or False: A budget is a detailed financial forecast.

True

True or False: A house and land are examples of real property.

True

True or False: ATM transactions require the use of a PIN.

True

True or False: Alimony received is included in gross income for the receiver and deducted from gross income for the payer.

True

True or False: An investment must be owned over one year in order to qualify for long-term capital gains treatment.

True

True or False: Credit unions typically pay higher rates of return on savings than banks and savings and loan associations.

True

True or False: Current consumption affects future consumption.

True

True or False: Debit and ATM card transactions are linked to your checking account.

True

True or False: If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate.

True

True or False: Jewelry, furniture, and computers are examples of personal property.q

True

True or False: One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account.

True

True or False: Personal financial planning involves translating financial goals into action plans.

True

True or False: Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or family.

True

True or False: Tax credits are dollar-for-dollar reductions in taxes due.

True

True or False: The Medicare portion of the FICA tax is paid on 100% of earnings.

True

True or False: The Six-Step Financial Planning Process is: 1. Define financial goals. 2. Develop financial plans and strategies to achieve goals. 3. Implement financial plans and strategies. 4. Periodically develop and implement budgets to monitor and control progress toward goals. 5. Use financial statements to evaluate results of plans and budgets, taking corrective action as required. 6. Redefine goals and revise plans and strategies as personal circumstances change.

True

True or False: The federal personal income tax is a progressive tax.

True

True or False: The heart of sound financial planning is improved standard of living.

True

True or False: The income and expense statement looks forward in time, while a budget is backward looking.

True

True or False: Utility refers to the amount of satisfaction a person gets from buying certain items.

True

True or False: When the income and expense statement indicates a cash surplus, this may be used to increase net worth by increasing assets or decreasing liabilities.

True

True or False: Your personal value system will shape your attitude toward money and wealth accumulation.

True

Cash and cash like investments are best used for what kind of goals?

Cash and cash like investments are best used for unexpected purchases you may come across or things you know you need to purchase soon.

What is the rule of 72 and if you are making 2% per year, approximately how many years does it take to double your money?

36


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