CH. (1)

Another name used for discounting is:

present value computations

The Fed has indirect control over interest rates. The Fed attempts to make adequate funds available for which of the following:

-Consumer spending -Business growth

Deflation

A decline in prices, can also have damaging economic effects. As prices drop, consumers expect they will go even lower. As a result, consumers cut their spending, which causes damaging economic conditions. While widespread deflation is unlikely, certain items may be affected and their prices will drop.

Which of the following is true regarding global influence of American consumption?

American consumers provide foreign companies with a market

How would a decrease in the interest rate effect the future value of a lump sum, single amount problem (all other variables remain the same)?

Decrease the future value.

How would an increase in the interest rate effect the present value of an annuity problem (all other variables remain the same)?

Decrease the present value.

According to MCPA Insights, which of the following is a common mistake related to Implementing a financial plan?

Emotional decision making

Interest Rate

In simple terms, interest rates represent the cost of money. Like everything else, money has a price. The forces of supply and demand influence interest rates. When consumer saving and investing increase the supply of money, interest rates tend to decrease. However, as borrowing by consumers, businesses, and government increases, interest rates are likely to rise.

The variables in a present value of a lump sum problem include all of the following, except:

Payment (Includes: Time period, Present Value, Interest Rate)

The variable in a future value of a lump sum problem include all of the following, except:

Payments (Includes: Interest rate, Time period, Future Value)

The variable that you are solving for in a present value of a lump sum problem is:

Present Value

The variables in a future value of an annuity problem include all of the following, except:

Risk tolerance (Includes: Payments, Interest rate, Time period)

The variable that you are solving for in a future value of an annuity problem is:

The Future value

What is the purpose of developing and analyzing your financial goals?

To differentiate your needs from your wants

Personal values have a direct influence on such decisions as spending now versus saving for the future

True

American consumers spend dollars on goods and services. The goods and services are manufacture or offered by American companies and companies from other countries. This is an example of:

a global economy and foreign competition

After considering the alternative courses of action to reach financial goals, one of the possible courses of action is to

continue the same course of action

The rule of 72 is used to estimate the time that it would rake for your money to:

double

Individuals with poor credit ratings will typically pay:

higher interest rates

Time Value of Money

involves the increases in an amount of money as a result of interest earned

Financial Plan

is a formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities

Inflation

is a rise in the general level of prices

Rachel has been shopping for a new refrigerator over the course of three days and has been putting all her household chores on hold. She finds a refrigerator that fits her needs and purchases it. This is an example of:

personal opportunity costs

The demographic that is most affected by inflation is:

persons on fixed incomes

Sound financial goals for a full-time student might include:

saving for higher education

Values

the ideas and principles that you consider correct, desirable, and important.

Adult Life Cycle

the stages in the family situation and financial needs of an adult—is an important influence on your financial activities and decisions

Economics

the study of how wealth is created and distributed

Older (50+) Single Person, No Dependent Children

-Arrange for long-term health care coverage. -Review will and estate plan. -Plan retirement living facilities, living expenses, and activities. -Monitor investments to consider current financial needs and market conditions.

Which of the following financial goals and activities would be best suited for single adults aged 18 to 35?

-Considering home purchase for tax benefits -Establishing financial independence -Purchasing disability insurance

Which of the following activities would be best suited for young couples with dual income and no children?

-Coordinate insurance coverage and other benefits. -Develop investment programs for changes in life situations (larger houses, children). -Consider tax-deferred contributions to a retirement fund.

Determining your current situation involves which of the following:

-Identifying current income, savings, living expenses and debts -Preparing your personal financial statements

Which of the following are part of evaluating alternative courses of action in the financial planning process:

-Inflation risk -Evaluating risk -Considering the consequences of your choices

What are the four situational influences for financial decisions?

-Mental status -Employment situation -Number and age of household members -Age

Mixed-Generation Elderly Individuals and Children under 18

-Obtain long-term care, life, and disability insurance coverage. -Use dependent care service. -Provide for handling finances of elderly if they become ill. -Consider splitting investment cost: elderly get income while alive, principal goes to survivors.

Which of the following personal factors can impact the spending and saving patterns of an individual?

-Personal beliefs -Household size -Age -Income

According to the text, what are the two main reasons Americans have financial problems?

-Poor planning, weak managements of money habits (Also: Advertising efforts and availability of goods encourages overspending)

Which of the following activities would be best suited for single parents with children under age 18?

-Purchasing insurance for health, life, and disability insurance -Saving money for college -Naming gaurdians of children in your will

Older Couples (50+), No Children

-Review financial assets and estate plans. -Consider household budget changes several years prior to retirement. -Plan retirement housing, living expenses, recreational activities, and part-time work.

INTEREST CALCULATIONS Three amounts are used to calculate the time value of money for savings in the form of interest earned:

-The amount of the savings (commonly called the principal). -The annual interest rate. -The length of time the money is on deposit.

Interest rates are affected by the following:

-demand for goods and services -supply of goods and services

Five methods are available for calculating time value of money:

1. Formula calculation. With this conventional method, math notations are used for computing future value and present value. 2. Time value of money tables. Traditionally, before calculators and computers, future value and present value tables were used (see the Chapter 1 Appendix) to provide for easier computations. 3. Financial calculator. A variety of calculators are programmed with financial functions. Both future value and present value calculations are performed using appropriate keystrokes. 4. Spreadsheet software. Excel and other spreadsheet programs have built-in formulas for financial computations, including future value and present value. 5. Websites and apps. Many time value of money calculators are available online and through mobile devices. These programs may be used to calculate the future value of savings as well as loan payment amounts.

According to the text, you should do a complete review of you finances at least:

Every year

The variables in a present value of an annuity problem include all of the following, except:

Future Value (Includes: Time period, Interest rate, payments)

How would a decrease in the interest rate effect the present value of a lump sum, single amount problem (all other variables remain the same)?

Increase the present value.

A common error made when solving a future value of an annuity problem is:

Multiplying the annual deposit and the number of years before calculating the problem.

When your investments are increasing, you may only be concerned with any amount of growth. What is one way to ensure that you do not lose sight of your actual goal-taken from the SMART approach?

State your goals in specific and measurable terms

Annuity

is a series of equal deposits or payments.

Future Value (Compounding)

is the amount to which current savings will grow based on a certain interest rate and a certain time period.

Unmarried Couple, No Children

-Plan joint and individual bank and credit accounts. -Communicate budgeting attitude differences. -Discuss and share joint and individual financial goals. -Consider a home purchase with a property agreement.

The variable that you are solving for in a present value of an annuity problem is:

The Present Value

Present Value

is the current value for a future amount based on a particular interest rate for a certain period of time. Present value computations, also called discounting, allow you to determine how much to deposit now to obtain a desired total in the future.

The variable that you are solving for in a future value of a lump sum problem is:

Future value

Opportunity Cost (Trade Off)

is what you give up by making a choice