Personal Financial Stewardship Exam #1 CH. 1 (multiple choice)

Randy Hill wants to retire in 20 years with $1,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal? Round your answer to the nearest dollar. A. $17,460 B. $18,000 C. $5,727 D. $25,000 E. None of the above

A. $17,460

If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit now? A. $889 B. $885 C. $1,010 D. $1,200 E. $950

A. $889

Present value computations are also referred to as: A. Discounting. B. Add-on interest. C. Compounding. D. Simple interest. E. An annuity.

A. Discounting.

Attempts to increase income through employment are part of the _____________ component of financial planning. A. Obtaining B. Planning C. Saving D. Borrowing E. Spending

A. Obtaining

Which of the following would increase the interest rate for a loan? A. Poor credit rating B. Higher down payment C. Constant interest rates D. Lower consumer prices E. Short time to maturity

A. Poor credit rating

Many Americans have money problems because of: A. Poor planning and weak money management habits B. Too many clearly defined goals C. Proper use of credit D. Not enough advertising to make effective decisions E. Controlled spending

A. Poor planning and weak money management habits

The rising of prices that causes changes in buying power is referred to as ____________ risk. A. interest-rate B. inflation C. income D. liquidity E. personal

B. inflation

If Melinda Miller estimates that her $100 weekly grocery bill will increase at an annual inflation rate of 4%, what should her weekly grocery bill be in 3 years? A. $30.00 B. $40.00 C. $112.50 D. $112.60 E. $121.60

C. $112.50

If a $10,000 investment earns a 7% annual return, what should its value be after 6 years? A. $10,035 B. $15,100 C. $15,010 D. $14,030 E. $15,500

C. $15,010

If you deposit $500 into a Certificate of Deposit earning 3%, what would be your earnings after 12 months? A. $10.00 B. $22.50 C. $15.00 D. $500.00 E. $515.00

C. $15.00

If a $10,000 investment earns interest of $500 in one year, what is its rate of return? A. .5 percent B. 1.05 percent C. 5 percent D. 50 percent E. 105 percent

C. 5 percent

If a $10,000 investment earns a 4 % annual return, what should its value be after one year? A. $4,000 B. $4,100 C. $10,000 D. $10,040 E. $10,400

E. $10,400

An advantage of personal financial planning is: A. The use of low-interest savings B. Increased impulse spending C. Less monitoring of investments D. More credit card debt E. Increased control of financial affairs

E. Increased control of financial affairs

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a(n) A. Financial plan. B. Insurance prospectus. C. Budget. D. Investment forecast. E. Statement.

A. Financial Plan

The Rule of 72 is: A. A tool to determine the number of years until retirement for an employee B. Used to estimate how long it takes for prices to double using a given annual inflation rate C. The legal code for requiring companies to provide a match on retirement savings D. Used to calculate interest rates for savings E. The number of steps required to complete a financial plan

B. Used to estimate how long it takes for prices to double using a given annual inflation rate

If inflation is expected to be 8 percent, how long will it take for prices to double? A. 6 years B. 7 years C. 9 years D. 12 years E. 18 years

C. 9 years

The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) __________ goal. A. Short-term B. Intermediate C. Long-term D. Intangible E. Durable

C. Long-term

If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future. A. Less B. The same as C. More D. Either less or the same as E. Either the same as or more

C. More

Financial decisions related to income include all of the following except: A. Spending B. Saving C. Sharing D. Taking E. All of these are financial decisions

D. Taking

The saving component of financial planning focuses on long-term security and includes: A. A regular savings plan for emergencies B. A current will C. A realistic budget for your current financial situation D. Minimizing transportation expenses through careful planning E. Bankruptcy counseling

A. A regular savings plan for emergencies

The step in the personal financial planning process that follows "Create and implement your financial action plan" is: A. Review and revise your financial plan B. Identify alternative courses of action C. Determine your current financial situation D. Evaluate your alternatives E. Develop your financial goals

A. Review and revise the financial plan

Changes in personal, social, and economic factors may require you to: A. Review and revise your financial plan more frequently. B. Identify alternative courses of action C. Determine your current financial situation D. Evaluate your alternatives E. Develop your financial goals

A. Review and revise your financial plan more frequently.

Changes in the cost of money is referred to as ____________ risk. A. interest-rate B. inflation C. income D. liquidity E. personal

A. interest-rate

The first step of the financial planning process is to: A. Develop financial goals. B. Determine your current financial situation. C. Analyze your current financial situation. D. Evaluate and revise your actions. E. Create a financial plan of action.

B. Determine your current financial situation.

Using the services of financial institutions or specialists (such as insurance agents or investment brokers) will be most evident in your effort to: A. Develop financial goals. B. Evaluate and your alternatives. C. Analyze your current financial situation. D. Implement your financial plan. E. Create a financial plan of action.

B. Evaluate your alternatives.

Which of the following is an example of a financial opportunity cost? A. Renting an apartment near school B. Forgoing wages to attend school C. Organizing income tax records D. Purchasing automobile insurance E. Using a personal computer for financial planning

B. Forgoing wages to attend school

Lower consumer saving and investing is likely to be accompanied by: A. Lower union wages B. Lower interest rates C. Lower production costs D. Higher interest rates E. Higher exports

B. Lower interest rates

Opportunity cost refers to: A. Money needed for major consumer purchases. B. What you give up by making a choice C. The amount paid for taxes when a purchase is made. D. Current interest rates. E. Evaluating different alternatives for financial decisions.

B. What you give up by making a choice

Future value computations are also referred to as: A. Discounting. B. Add-on interest. C. Compounding. D. Simple interest. E. An annuity.

C. Compounding.

_________ goals relate to infrequently purchased, expensive items. A. Short-term B. Intangible-purchase C. Durable-product D. Consumable-products E. Intermediate

C. Durable-product

An investor should expect to receive a risk premium for: A. Expanded exports B. Lower consumer prices C. Higher uncertainty about getting his/her money back D. Reduced availability of investments E. Expected lower inflation

C. Higher uncertainty about getting his/her money back

Which of the following intermediate goals is stated most clearly? A. Buy a car for less than $17,000 within 6 months B. Retire in 10 years at age 65 with $2,000,000 in my 401(k) account C. Purchase a house with a mortgage no greater than $150,000 within 3 years D. Set up an emergency fund E. Invest $50 per month for the next 18 years for my nephew's college fund

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

The consumer price index measures: A. The prices of products and services in the United States B. The prices of products and services around the world C. The average change in prices of products and services of urban consumers D. The change in prices of products and services around the world E. None of the above

C. The average change in prices of products and services of urban consumers

The loss of a job or encountering an illness results in ____________ risk. A. interest-rate B. inflation C. income D. liquidity E. personal

C. income

The stages in the family situation and financial needs of an adult is called the: A. Financial planning process B. Budgeting procedure C. Personal economic cycle D. Adult life cycle E. Tax planning process

D. Adult life cycle

Who is least likely to be harmed by inflation? A. Financial Regulators B. Lenders C. Retired People D. Borrowers E. Fixed Income Consumers

D. Borrowers

The problem of bankruptcy is associated with overuse and misuse of credit in the ______________ component of financial planning. A. Sharing B. Savings C. Obtaining D. Borrowing E. Protecting

D. Borrowing

To develop financial goals, one should: A. Set several general goals for the short-term B. Only set long-term goals after short-term goals have been accomplished C. Focus on intermediate goals first D. Identify specific, realistic goals that are measurable along with a time frame and an action plan E. Not worry about whether or not the goals can be achieved based on one's income and life situation

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

Which of the following best describes the concept of the time value of money? A. Personal opportunity costs such as time lost on an activity. B. Financial decisions that require borrowing funds from a financial institution. C. Changes in interest rates due to changes in the supply and demand for money in our economy. D. Increases in an amount of money as a result of interest earned. E. Changing demographic trends in our society.

D. Increases in an amount of money as a result of interest earned.

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? A. Personal Opportunity cost relating to abilities B. Personal Opportunity cost relating to knowledge C. Personal Opportunity cost relating to health D. Personal Opportunity cost relating to time Unexpected personal opportunity cost

D. Personal Opportunity cost relating to time

An example of a personal opportunity cost would be: A. Interest lost by using savings to make a purchase. B. Higher earnings on savings that must be kept on deposit a minimum of six months. C. Lost wages due to continuing as a full-time student. D. Time comparing several brands of personal computers. E. Having to pay a tax penalty due to not having enough withheld from your monthly salary.

D. Time comparing several brands of personal computers

To calculate the time value of money, we need to consider all of the following except the: A. amount of the savings. B. Annual interest rate. C. Length of time the money is invested. D. Type of investment. E. Principal.

D. Type of investment.

If you begin saving $2,000 a year at 5% (from age 22 to age 30 or 9 years), what will these funds grow to in this time period? A. $22,010 B. $22,054 C. $21,084 D. $22,256 E. $22,018

E. $22,054

Every decision involves uncertainty, which is referred to as: A. Opportunity cost. B. Selection of alternatives. C. Financial goals. D. Personal values. E. Evaluating Risk.

E. Evaluating Risk

Which of the following is correct? A. A car purchase is a consumable-product goal B. Entertainment is a durable-product goal C. Appliances and sporting equipment are intangible-purchase goals D. Leisure and education are durable-product goals E. Food and clothing are consumable-product goals

E. Food and clothing are consumable-product goals

The 'borrowing' activity in a financial plan relates to: A. Acquiring adequate insurance coverage B. Investing for long-term growth C. Setting up a budget D. Obtaining financial resources from employment, investments or ownership E. Maintaining control over credit-buying habits

E. Maintaining control over credit-buying habits

The potential for difficulty to convert an investment to cash is referred to as ____________ risk. A. interest-rate B. inflation C. income D. personal E. liquidity

E. liquidity

The tangible and intangible factors that create a less than desirable situation is referred to as ___________ risk. A. interest-rate B. inflation C. income D. liquidity E. personal

E. personal