Personal Financial Planning Exam I

Assume Helen earns $8.40 per hour. If she receives "time and a half" for any hours worked over 40 per week, how much will Helenearn if she works 45 hours this week?

$399.00. Regular hourly wages per week: 40 ×$8.40=$336Overtime per hour pay: $8.40 ×1.50=$12.60Overtime pay for 5 hours: $12.60 ×5=$63.00 Total Wages: $336+$63.00 = $399.00

Karen earns $82400 per year as an employee. How much will she pay this year in Social Security taxes?

$5108.80.

Matthew has the following financial resources, assets, and liabilities: $9000 Mazda Miata; $6750 in computer equipment; $18000 in earnings; $4500 in credit card bills; and $2250 in student loans. What is Matthew's net worth?

$9000

Angelica (23 years old) studied dance in college and graduated a year ago. She currently works as a dance instructor at a high school for the arts. Her gross pay is $40,000 a year, or $3,333 a month. After taxes, health insurance, and other paycheck deductions, her net pay is $32,800 a year. The transmission on her old car just broke, and it will cost several thousand dollars to repair. She decides that it is time to purchase a new car. She does not have sufficient savings to buy a car outright, so she is planning on getting a car loan to make the purchase. She has monthly student loan payments of $342 and monthly rent of $750. Jill would like to keep her total debt-to-income ratio equal to or below the recommended level. What is the maximum amount her monthly car loan payment can be so that her total debt-to-income ratio is equal to or below the recommended limit?

$108 monthly car loan payment.

Sarah recently purchased 140 shares of a company for $16800 ($120 per share). The company has been doing well. This year, she received a dividend of $1680. Given the success of the company, her shares are now worth $200 each. What is Sarah's per share basis in the company?

$120.

What is the future value of $125000 if you can earn 7% on an annual basis for 5 years?

$175319.

If Helen has a surplus of $4,800 per year and chooses to save that surplus for her future, needs, how much wealth will her surplus savings be worth after 15 years if she can earn a 12% rate of return?

$178,942.63

Richard is in the market for a used car. He has found the same sports car at two different dealerships and is now considering which dealer he should purchase the car from. Dealer 1 requires Richard to get the loan through their lending department. Dealer 1 has told Richard that because they do their own financing, they can get Richard the very best loan possible and Richard will only have to pay $237 per month for 60 months (5 years). Dealer 2 is selling the car for $9600. Dealer 2 has told Richard he can use their financing or get his own lender, so Richard talked with his bank and learned that he can get a 5 year car loan for 4.8% APR. Dealer 2 has also offered Richard a 5 year loan for 5.8%. Based on these loan options, what is Richard's lowest monthly loan payment option?

$180 per month for 60 months from Richard's bank.

Brian works for a cookie company downtown. He earns $7 per hour. In a typical week, he works 21 hours. His employer provides overtime pay equal to 2 times his normal wage if he works past 40 hours. The company also provides a 12% commission on all cookies sold. How much can Brian make this week if he works 32 hours and sells $950 worth of cookies?

$338.

Dorothy (25 years old) studied music education in college and graduated a year ago. She currently works as a music teacher at a year-round private middle school. Her gross pay is $34800 a year, or $2900 a month. After taxes, health insurance, and other paycheck deductions, her net pay is $31500 a year. Based on recommended guidelines, how much money should Dorothy be saving each month?

$348 per month. Target Monthly Savings = $2900(0.12) = $348

Which of the following is a better deal if you want to maximize the return on your savings?

Earning a periodic interest rate of 1.25% compounded semiannually.

Now that Graham has graduated college, he is facing several changes in his life. He was recently married and started a new job in a large city. Which of the following events is going to have the highest cost over Graham's life?

Having and raising a child.

Which of the following statements about a person's health and wealth is false?

Healthy people spend more money on food and exercise, which reduces their lifetime wealth accumulation.

Jane just got her first paycheck. How does she know if she is considered to be an employee of a firm?

Her paycheck withholds FICA taxes.

Which of the following strategies is most likely to increase your confidence about your financial future? I.Saving money on a regular basis. II.Paying down debt as quickly as possible. III.Borrowing money to improve GDP.

I and II only.

Which of the following are potential liabilities associated with business ownership? I.Taxes II.Debts III.Lawsuits.

I, II, and III.

Joseph has received a college scholarship and can choose whether to receive it as an immediate one-time payment of $11000 or as a series of four equal payments (at the end of each year), each totaling $3300. Assume that Joseph has a discount rate of 9%. Only considering TVM principles, which option is most valuable to Joseph?

Immediate payment of $11000.

Yolanda and Wes decide to go into business together. What form of partnership arrangement can they use to limit their individual and business liability?

Limited liability company.

Bud is 43 years old. He would like to retire at age 67 and move to the Caribbean. What is Bud's goal time horizon?

Long term.

Steven has been an active postage-stamp collector for a number of years. A few years ago, he bought a scarce U.S. postage stamp for $4300. He has now decided to sell the stamp. If he sells it at an auction and receives $4700 but pays a 10% sales commission on the amount received, what will be Steven's capital gain/loss?

Loss of $70.

Mike earned his bachelor's degree in history 3 years ago and started working shortly thereafter as a teacher. Michelle earned her high school degree 5 years ago and took a job right out of school. Maria earned her associate's degree last year and started work right after graduation. During the next economic recession, who is generally, most likely to be unemployed?

Michelle

Max is a physician and considers himself smarter than most people. Since he has never lost money in an investment, he often chooses investment options that carry high risk and feels that he can't lose money on any investments. Which of the following mental biases is Max is exhibiting?

Optimism bias

Yolinda and Wes decide to go into business together. They are excited to get started immediately. Which of the following forms of business can they use when establishing their company?

Partnership

Which of the following statements are true?

People who hold a past negative time orientation have a hard time saving for the future.

Creating deadlines for yourself is an example of what type of decision-making strategy?

Pre-committing to decisions.

Arnold rarely thinks about his future. He loves to work out and spend time with friends living in the moment. Given his orientation, which of the following best describes Arnold's time orientation?

Present-hedonistic.

Nicholas is a 30-year-old divorced father of two. He works for a civil engineering firm as a project manager. He currently is unable to save money, although he does not run a monthly budget deficit. The value of his assets barely exceeds the total of his debts and liabilities. Which of the following is an attainable goal for Nicholas?

Purchasing a moderately priced new car in 3 years.

Who is more likely to amass greater wealth?

Ravi, who earns 8% interest over a 10-year period.

Nick, a skilled welder, had been working for 12 years in a factory that recently closed. This has caused high unemployment in his town and region. If Nick is concerned about maximizing his human capital and lifetime wealth accumulation, which action would be most beneficial?

Relocate to a place where his welding skills will be valued in the market place.

Use the following information to answer the question that follows about Robert. Item Budget Actual Difference Income $9150 $9150 Rent $2030 $2030 Utilities $1020 $840 Taxes $3110 $3210 Transportation $510 $720 Food at Home $370 $290 Food Away from Home $500 $780 Debt Payments $1020 $1020 Savings $590 $225 Total Expenses Surplus/Deficit Given Robert's monthly budget and his actual income and expense information, which of the following statements is true?

Robert ran a $35 surplus for the month.

Someone who qualifies for Medicaid may also be eligible for:

SNAP, TANF, and refundable tax credits.

Which of the following is an example of a SMART goal?

Saving $75,000 for the down payment on a home that will be purchased in 4 years.

Kenneth has the following assets and liabilities: Cash:$710 Clothes and Furnishing: $7100 Car:$21300 Investments:$71000 Credit Card Bills: $568 Car Loan: $7100 Student Loan: $11000 What is Kenneth's current ratio?

1.25

Kevin has the following assets and liabilities: $3672 in a savings account, $50000 in stocks, $2700 in credit card bills, and a car loan of $33500. Given this information, what is Kevin's current ratio?

1.36

Robert purchased 145 shares of UGA Corporation for $10 per share last year. He received a $1.00 dividend per share. If he sells all of the shares for $12.50 each, what will be his capital gain in percentage terms?

25%.

Chris earns $7910 per month. His monthly expenses include: $970 in rent, $910 in recreational expenses, $450 in food, $370 in auto payments, $200 in gas and maintenance, $700 in student loan repayments, $260 in credit card payments, and $1810 in miscellaneous expenses. Assuming Chris saves his monthly surplus, what is his approximate savings rate?

28.32%.

Robert earns $8500 per month. His monthly expenses include $850 in rent, $950 in recreational expenses, $500 in food, $500 in auto payments, $280 in gas and maintenance, $900 in student loan repayments, $300 in credit card payments, and $1990 in miscellaneous expenses. What is Robert's debt to income ratio?

30%. $850 (rent) + $500 (auto) + $900 (student loan) + $300 (credit card) = $2550 Debt Payments. Total Debt to Income Ratio=(Total Required Debt Payments)(Gross Income) Total Debt to Income Ratio=$2550=30%$8500

How long would it take, approximately, for you to double your money if your investment earned, on average, a 14% return?

5.14 years.

Based on findings from the Marshmallow experiment, about what percentage of Americans fall prey to time temptation (i.e., not willing to wait)?

70%.

Gary hopes to buy a house in 9 years. He currently has $74000 saved. How much must he earn in interest, on an annualized basis, to purchase a house valued at $148000 ?

8.01%.

______________ connects you with people with whom you would not usually socialize.

A formal network

Who is more likely to be paid a wage?

A high school graduate.

Which of the following is most clearly a personal financial strength?

A willingness to save money on a regular basis.

Use the following information to answer the following question about John. Item Budget Actual Difference Income $9,000 $9,000 Rent $2,000 $2,000 Utilities $1,000 $800 Taxes $3,000 $3,100 Transportation. $500 $700 Food at Home $400 $300 Food Away from Home. $500 $800 Debt Payments $1,200 $1,200 Savings $400 $25 TOTAL EXPENSES SURPLUS/DEFICIT Which of the following is true?

Although John did not exceed his budget, he was not able to save as much as projected.

What do the equal monthly payments of a car loan or mortgage represent, if the original principal represents the present value and the loan is completely paid off at maturity?

Amortization payment.

Alexis is considering taking out a loan to purchase a car. She'd like to know how much her payment would be if she borrowed $10,000 for 5 years at 4% interest. What TVM tool should Alexis use?

Amortization schedule.

If Helen has a surplus of $4800 per year and chooses to save that surplus for her future, needs, how much wealth will her surplus savings be worth after 15 years if she can earn a 12% rate of return?

Approximately $178943.

Ana runs a small jewelry-making business from her home. She has no full-time employees, but she does pay her son (age 15) to help package and ship products. Over the holidays, Ana and her son put in many hours to meet rush orders. In fact, over the holiday break, her son logged about 60 hours of work. Typically, Ana pays her son $5 per hour. Which of the following is true in relation to this case?

Because he is employed by his family, he is not entitled to extra pay or overtime pay.

Someone who erroneously attributes outcomes to skill rather than chance, while ignoring indications that would undermine perceptions of skill, is prone to:

confirmatory bias.

Which of the following is not a capital asset?

Your human capital.

The difference between an annuity and an annuity due is that an annuity due is:

a series of payments occurring at the beginning of the month.

Nigel believes that most "rich people" obtained their wealth either through hard work or by investing wisely. Assuming Nigel adopts this same perspective as a guide to his own spending and saving behavior, he is most likely to become:

a.more knowledgeable about the financial marketplace over time and increase his personal wealth.

When comparing loan offers, you should use the:

annual percentage rate.

Mary needs to save $40000 over the next 5 years. If she can save $5000 per year and earn an 8% rate of return on an annualized, basis, by how much (approximately) will she exceed or fall short of her goal?

She will fall short of the goal by $10667.

All of the following are related to a person's current income except:

Social Security benefits.

How are Social Security benefits currently funded and paid to beneficiaries?

Taxes from current workers are used to fund payments to current retirees.

Anthony has the following sources of income: $4190 from his job; $1140 in unemployment insurance; $2190 from the sale of his motorcycle; and $600 in birthday gifts. Which of these sources is not considered unearned income?

The $4190 from his job.

Which of the following statements is true?

The greater the debt ratio, the worse the financial situation.

Which of the following relationships accurately describes the role of financial risk-taking and wealth accumulation?

The greater the return required, the greater the risk that must be taken.

Who is most likely to accumulate more wealth?

The person who is willing to take risk after adequate research.

Haley owns a Honda Civic. She is creating her balance sheet and needs to input a value for the car. Which of the following is an indication of the car's fair market value?

The trade-in value of the car.

What helps explain why some people play the lottery even when they know the odds of winning are astronomically low?

They have a relatively low level of financial literacy and they view playing the lottery as a form of entertainment.

James is wondering how much money he needs to have to receive an annuity payment of $10,000 per month for 30 years, after which time the payments will stop and his investment will be used up. James believes he can earn 6% on his investments. How many TVM inputs does James need to solve this problem?

Three inputs (the interest rate, and time period, and payment amount).

Given the choice, it is preferable to earn interest that is compounded:

daily

Toward the end of your career, your human capital tends to ___________________, whereas your assets tend to ______________.

decrease; increase.

Emily invested $100,000 into a startup company this year. For the first time, she received a payment from the company for $3,000. The $3,000 is called a(n)

dividend

When you deposit money into an FDIC-insured bank account, you are considered a(n):

lender

Generally, those with the greatest financial knowledge tend to:

make better financial decisions, and take appropriate risks, but also may overestimate their skills.

Nellie just took a risk-tolerance quiz online and learned that she is in the bottom 10%. She should:

not be worried because her risk tolerance will increase as her knowledge and experience increase.

Ruby, age 50, is considering going back to school. She would like to retire at age 67. She currently earns $50,000 per year. If she goes back to college and completes a graduate degree, she will earn $55,000 per year. If the total cost of the graduate degree is $75,000, Ruby should:

only go back to school if the time and effort will result in an increase in personal satisfaction and fulfillment.

Swarn is a risk-taker. His core life philosophy is that nothing bad can happen to him. When he thinks back over his life, he can't remember any serious negative events. When he looks ahead, he simply can't imagine a painful loss occurring to him. Swarn likely suffers from a(n):

optimism bias.

Because of the TVM concepts learned in this topic, you should _________ receiving $1,000 in 1 year if given the opportunity to receive $1,000 in 2 years from today.

prefer

When Todd thinks of investing in the stock market, he equates the action with terms like loss, risk, and danger. This is an example of Todd's:

risk perception.

An administrative worker who does not generally receive overtime pay is likely paid a:

salary

The easiest type of business to start is a:

sole proprietorship.

A deficit in a budget means you are:

spending more than you are earning.

Mary sees no reason to change if what she is doing has worked in the past. Given her perspective, Mary may be exhibiting a(n):

status quo bias.

When Uma thinks about risk, the first thing that comes to mind is excitement. Uma is likely:

very risk-tolerant.

The way you view the financial world is shaped most profoundly by: your financial knowledge, financial risk-taking, and feelings of control over your situation. your teachers. your feelings about the world economy. the news media and reports of GDP.

your financial knowledge, financial risk-taking, and feelings of control over your situation.

Sharon wants to know how much money she will have saved for retirement if she saves $300 per month for the next 20 years and earns 8% interest each year. Sharon is looking for the:

future value of an annuity.

Short-term financial goals:

help you reach your long-term goals.

The power of compound interest refers to:

interest being reinvested and earning additional interest.

Someone who takes risks with his/her money by buying assets or shares in a company in hopes of receiving unearned income in the form of dividends is called a(n):

investor

Assume your employer offers a bonus of $5700. The only catch is that you must wait 9 years to take possession of the money. If you can earn 4% on your savings, what is the minimum you would take today in order to match the bonus?

$4005.

What is the formula for net worth?

Assets - Liabilities.

Your friend Lucia is a procrastinator. How can you best help her overcome this weakness? I. Create deadlines. II.Encourage hyperbolic discounting. III.Strengthen her confirmatory bias.

I. Create deadlines.

When faced with financial emergencies, such as unemployment, individuals and families should first use:

emergency savings and unemployment benefits.

A tool that helps you determine where you actually spent your income is known as a(n):

income and expense statement.