PFP Exam #1 ORU (Ch.1-6)

you have $450 in your checking account when your ATM and pin are stolen. You could lose up to _____ if you report the lost ATM card within 8 days.

$450

As a percent of value-home pay, monthly consumer credit payments should not exceed...

20%

Compared to other depository financial institutions, credit unions

ALL OF THE ABOVE are run to benefit their members pay higher interest on savings charge lower rates on loans

Liquid assets are held in order to

ALL OF THE ABOVE meet recurring household expenses make everyday transactions have money for emergency expenditures build reserves for future planned expenditures

Which of the following is not a strategy to building your nest egg.

ALL OF THE ABOVE ARE STRATEGIES make savings a priority reinvest interest and dividends splurge once in a while set up a retirement plan

Woman maintain credit in their own name rather than solely with their husband to do this a woman should

ALL THE ABOVE use a consistent, legal name rather than Mrs. _____. notify the credit bureau of a name change, if any. notify the credit bureau that she wants to maintain a separate credit file. make sure credit information is reported in her name as well as her husband's.

When comparing credit cards, a person who pays his total outstanding balance off monthly would want a card with...

Answers C & D an adequate grace period no annual fee

All the following are useful ways to build a strong credit rating except...

Apply for a long term loan & pay it all off

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

FALSE

A liquid asset can be quickly converted into cash, but huge loss of value

FALSE

A married couple filing a joint return has Ms. Cindy Cook, a CPA, complete their return. The IRS will hold only Ms. Cook responsible for any errors on the return.

FALSE

A person making $35,000 and spending $30,800 has an average propensity to consume of 80%

FALSE

A primary reason for holding liquid assets is to save for long term goals

FALSE

Bank credit card purchases always begin accruing interest immediately.

FALSE

Credit cards with very low minimum balance requirements are in the consumer's best interests.

FALSE

How long you invest is not nearly as important as the rate of interest you can earn on your investments.

FALSE

Inflation means price levels have declined

FALSE

It is safe, and often required, to give your Social Security number as a form of identification when using a credit card.

FALSE

Money market mutual funds are insured up to $100,000 by the FDIC if purchased at an insured bank

FALSE

Mortgage interest and credit card interest are both itemized deduction items.

FALSE

Only the current month's payment on your mortgage loans would be listed on the balance sheet as a liability.

FALSE

Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly.

FALSE

The Consumer Price Index is the amount of goods and services each dollar buys at a given point in time

FALSE

The Federal personal income tax is a regressive tax.

FALSE

The alternative minimum tax is an issue only for high-income taxpayers.

FALSE

The balance sheet includes information on your latest paycheck.

FALSE

The federal personal income tax is a regressive tax

FALSE

The need for financial planning declines as your income increases

FALSE

The rate of return on liquid assets is relatively high compared to other types of investments

FALSE

Using credit is the ideal way to provide for financial emergencies.

FALSE

When evaluating your income statement, primary concern should be placed on the income received.

FALSE

You are preparing your own tax return. The least costly source for answering your questions would be

IRS 800 numbers

To establish credit worthiness you probably should first

Open a checking & savings accounts

A balance sheet shows your financial condition as of the time the statement is prepared.

TRUE

A charge made on your credit card becomes a liability as soon as the charge is incurred.

TRUE

A money market mutual fund is one way to participate indirectly in the purchase of money market securities.

TRUE

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

TRUE

Assets purchased on credit should be included on the asset side of the balance sheet.

TRUE

Businesses are a key part of the circular flow of income that sustains our free enterprise system

TRUE

Compound interest means that a savings account earns interest previously earned

TRUE

Consumers effect businesses by their choices of what goods and services to purchase and by choosing whether they will spend or save their incomes

TRUE

Current consumption effects future consumption

TRUE

Current consumption is inversely related to saving for the future

TRUE

Defining financial goals is an important first step in the financial planning process

TRUE

Financial planning is a continuing, lifelong process

TRUE

Having a checking account tells the creditor that you have some experience in managing your own funds.

TRUE

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

TRUE

Inability to reach short-term goals will significantly affect your ability to reach long-term goals.

TRUE

It takes two keys, one help by the bank and one held by the customer, to open a safe deposit box

TRUE

Money market deposit accounts are insured by the FDIC if purchased at an insured bank

TRUE

Never adding up all of one's bills is one of the sign's that one may be headed for credit problems.

TRUE

One can be over using credit though he can afford to make the minimum monthly payments at the same time.

TRUE

One can be overusing credit even though he can afford to make minimum monthly payments on time.

TRUE

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

TRUE

One's average tax rate is typically lower than one's marginal tax rate

TRUE

Opening a traditional IRA would allow you to defer taxes on the earning.

TRUE

Problems with credit cards often begin in college.

TRUE

Saving is the preferred way to provide for financial emergencies.

TRUE

Social security taxes are paid on earned income but not on investment income.

TRUE

Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or group

TRUE

Tax avoidance is a legal means to minimize tax liabilities.

TRUE

The Congress writes and passes the Internal Revenue Code.

TRUE

The annual percentage yield formula considers compounding in determining interest rate

TRUE

The cost of raising a child from birth to age 18 is now ore than $300,000

TRUE

The income and expenditures statement provides a measure of financial performance over a period of time.

TRUE

The most effective way to meet financial goals is through financial planning

TRUE

The purpose of a credit investigation is to evaluate the kind of risk you pose to the lender

TRUE

When the income statement indicates a surplus, this may be used to increase net worth by increasing assets or decreasing liabilities.

TRUE

You are more likely to achieve your goals if a definite goal date is set.

TRUE

You should itemize deductions when total itemized deductions exceed the standard deduction.

TRUE

Money is

a medium of exchange

You have no employer provided pension plan; your IRA contributions are treated as

an adjustment to gross income

If you write a check for an amount greater than your account balance, the result will be

an overdraft

The three parts of your balance sheet are

assets, liabilities, net worth

The balance sheet describes a family's wealth

at a certain point in time

Which of the following are legal methods of reducing your current tax liability?

b) investing in a tax-deferred annuity c) shifting income to your children

_____ is not an liquid asset

bond mutual funds

Janice Sanders plans on saving $12,000 for 3 years until she returns to college for her master's degree in personal financial planning. She would like to receive a fixed rate of return over that period. Which of the following would you recommend? a. money market deposit account b. 1-year certificate of deposit c. 3-year certificate of deposit d. Series EE US savings bond e. b or c

c. 3-year certificate of deposit

Which of the following would be an appropriate savings vehicle if you expected interest rates to fall over the next few months?

c. certificate of deposit

Funds in a ____ must remain on deposit for a stated time period in order to avoid an interest penalty.

certificate of deposit

Whenever you write a check or make a deposit, an entry should be made on your

checkbook ledger

Your _________ is an example of a liquid asset.

checking account

_________ is an example of an investment asset.

corporate bond

The expenditure categories for your budget should be determined by

current and expected future spending.

The first step in the financial planning process is to

define your goals

A cash budget should help you to

do all of these: achieve your short-term financial goals. implement disciplined spending. eliminate impulse spending. allocate funds to savings and investments.

When a cash surplus exists on your income and expenditure statements, you can

do any of above acquire assets. pay off existing debts. increase your savings. increase your investments.

The annual percentage yield is the same as the

effective rate

Another term sometimes used instead of net worth is

equity

It is not a good idea to use credit for...

expendable items

Interest will almost always begin to accrue immediately when you use a bank credit card to...

get cash advances

You are more likely to achieve your goals when

goals are reassessed and revised periodically

Your take-home pay is what you are left with after subtracting withholdings from your

gross earnings

The income statement includes

income, expenditures, surplus or deficit.

It is NOT a good idea to use credit to..

live beyond one's means

When setting financial goals, one should typically start by setting

long-term goals

Personal financial management is important because it

makes personal financial goals easier to achieve

To establish creditworthiness you probably should first

open savings and checking accounts

The most important rule in establishing a savings plan is to

pay yourself first

The federal income tax is

progressive

Family financial goals should be

realistically attainable

The last step in the financial planning process is to

redefine goals and revise plans and strategies as personal circumstances change

A capital gain is the result of

selling an asset for more than purchase price

Financial planning can help us to

spend wisely

If you do not wish to itemize deductions, you can use the

standard deduction

Tax credits reduce your

tax liability

The more frequently a bank compounds interest ______ will be.

the higher the APY

You are solvent if your

total assets exceed total liabilities

In order to establish her own credit history a woman should

use her legal name

____would not be an indication of overspending

you pay off the entire balance of your credit cards each month