Chapter 1 (Personal Finance)

Examples of opportunity costs include:

not getting a high yield because you have set aside funds in a low risk investment taking home less pay now because you have increased tax withholdings to receive a larger tax refund not having as much money in savings because you purchased new appliances to save energy costs

The Fed has indirect control over interest rates. This will have an influence on which of the following items:

Consumer Spending Business Expansion

What is the term often used when an individual creates an organized process to achieve financial and personal satisfaction?

Personal money management

According to the text, what is the primary benefit for most people to organizing their personal finances?

To gain personal and financial satisfaction A person can take control of his/her financial situation

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

True

Liquidity is the ability to buy or sell an investment quickly without substantially affecting the investments value

True

Three items needed to calculate future value include: principal, length of time, annual interest rate

True

Personal opportunity costs include using your time, in addition to or in place of money, to

achieve your goals satisfy your personal values meet your needs

The purpose of the Federal Reserve System is to

act as the central bank and maintain an adequate money supply

The purpose of the Federal Reserve System is to:

act as the central bank and maintain an adequate money supply

The different stages of the financial and family needs of an adult is called the:

adult life cycle

The Fed influences the money supply by:

buying and selling government securities controlling interest rates

Examples of opportunity costs do NOT include:

having enough money to fund retirement and pay for current expenses

Decreased money supply will generally cause ______ interest rates

higher

As long as you can earn a positive rate of interest, the future value of an amount will be __________ the original amount

higher than

Specific advantages of personal financial planning include:

improved personal relationships increased effectiveness with resources increased control with financial affairs

Specific advantages of personal financial planning include:

increased control with financial affairs increased effectiveness with resources improved personal relationships

Spending less than you earn is the only way to achieve ______-term financial security

long

Two methods that will NOT help develop long-term successful financial habits are:

saving as much money as possible for only one year regularly using your emergency fund for routine expenses

A 'SMART' financial goal is

specific, measurable, action-oriented, realistic, and time-based.

Every time you save or spend you should consider the

time value of money

Opportunity costs when not measured in dollars are sometimes called the:

trade - off

Long-term financial security begins with a regular savings plan to provide for

unexpected bills replacement of major items emergencies

Yearly earnings

=Savings amount × Annual interest rate

Which are well-structured financial goals that follow the SMART guidelines?

Accumulate funds in an emergency fund equal to three months' salary by the end of next year Save $200 per month for two years for a down payment on a new car

Match the goal with the action required to meet the goal.

Provide $10,000 for college in 10 years Make regular savings deposits Provide for financial needs of parents Purchase life insurance with parents as beneficiaries Provide insurance coverage for medical needs Evaluate insurance options evaluate and select coverages

A key factor in making financial decisions is time value of money

True

Appropriate insurance coverage is an essential part of personal financial planning

True

If you have an income of $35,000 a year, and you want to save around $7,000 a year, should you have a financial goal of purchasing a new exotic sports car? Why or why not?

You should not have a financial goal of purchasing such a car. The reason is that the financial goal is unrealistic

Paul needs to have $200 in two years. The interest earned on the account is 4%, compounded annually. How much does he need to invest today

$185

Intangible-purchase goals all deal with very similar areas of focus

False

William has been reviewing his financial plan every six months. Should William continue to check his financial plan every six months during an economic downturn? Why or why not?

No. Possibly William should check his financial position more often due to the severe change in the economy.

the most commonly overlooked type of insurance is disability insurance

True

Obtaining monetary resources is the foundation of personal ______ planning

financial

Personal opportunity costs include using your time, in addition to or in place of money, to

meet your needs satisfy your personal values achieve your goals

Carl has decided to stop using credit. This will mean that there will be

more money available for the future

Rate of increase

=(Ending value − Beginning value) / Beginning value

You have developed a savings plan and will be setting aside money for the next one year to make an investment. You plan to use the return from this investment to make down payment to purchase a home after three years. What are key time frames for this goal?

Achieving short-term and intermediate goals

Saving for four years for a down payment on a house affects how soon you are able to purchase a home. This is an example of:

an intermediate goal that affects a long-term goal

Place the steps of the financial planning process in order

1. Determine current financial situation 2. Develop your financial goals 3. Identify alternative course of action 4. Evaluate alternatives 5. Create and implement financial plan 6. Review and revise financial plan

The Fed influences the money supply by:

buying and selling government securities controlling interest rates

Examples where "no action is an action" will usually have an adverse outcome are:

choosing not to go to school because you are not confident to appear for tests avoiding looking for a job because you are unsure what type of job you would like avoiding making a decision because you are not sure which alternative to choose

Retirement planning typically does NOT include:

comparing your net worth to net worth of others plan to repay college loans

Financial planning is designed to:

create a better life

Financial planning would NOT improve your quality of life by:

creating barriers to enjoying life guaranteeing happiness creating specific rules for how everyone should live

The present value is the ______ value for a _____ amount based on a particular interest rate for a certain period of time

current; future

Investors that are interested in receiving potentially decent current income will probably invest in

dividend paying stocks

An annuity is a series of _____ deposits

equal