Chapter 2 Questions

What is the future value of $105000 if you can earn 9% on an annual basis for 7 years? (Round answers to 0 decimal place, e.g. 5275.) - $191944 - $181650 - $234782 - $210000

$210000

Daniel has the following assets and liabilities: $2340 in a savings account, $49100 in stocks, $1287 in credit card bills, and a car loan of $30400. Given this information, what is Daniel's current ratio? - 1.62 - 0.62 - 0.55 - 1.82

1.82

Who is more likely to amass greater wealth? - Luis, who earns 2% interest over a 30-year period - Gayle, who earns 5% interest over a 15-year period - Ravi, who earns 8% interest over a 10-year period - Amal, who earns 3% interest over a 25-year period

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

The difference between an annuity and an annuity due is that an annuity due is: - a fixed payment that must be discounted - a series of payments occurring at the end of the month - a series of payments occurring at the beginning of the month - a periodic distribution that changes in value

a series of payments occurring at the beginning of the month

When comparing loan offers, you should use the: - compound rate of return - geometric average - annual percentage rate - annual percentage yield

annual percentage rate

Which of the following statements is true? - The lower the debt ratio, the worse the financial situation - The greater the debt ratio, the worse the financial situation - The lower the current ratio, the better the financial situation - The greater the current ratio, the worse the financial situation

The greater the debt ratio, the worse the financial situation

A deficit in a budget means you are: - saving more than what you are spending - earning more than you are spending - saving more than what you are earning - spending more than you are earning

spending more than you are earning

Given the choice, it is preferable to earn interest that is compounded: - monthly - yearly - daily - quarterly

daily

When Uma thinks about risk, the first thing that comes to mind is excitement. Uma is likely: - somewhat risk-averse - somewhat risk-tolerant - not at all risk-tolerant - very risk-tolerant

very risk-tolerant

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: - present value of an annuity - future value of an annuity - rate of return - annuity payment schedule

future value of an annuity

Generally, those with the greatest financial knowledge tend to: - make the best financial decisions - take appropriate risks - overestimate their skill - make the best financial decisions, take the greatest risks, and overestimate their skills

make the best financial decisions, take the greatest risks, and overestimate their skills

Charles hopes to buy a house in 8 years. He currently has $90000 saved. How much must he earn in interest, on an annualized basis, to purchase a house valued at $180000 ? (Round answers to 2 decimal places, e.g. 52.75.) - 18.00% - 8.90 % - 9.05% - 11.00%

9.05%

Use the following information to answer the following question about John. Budget Actual 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? - John is doing a good job managing his resources according to his budget - While John did exceed his budget, he is financially stable because of his excess savings - Although John did not exceed his budget, he was not able to save as much as projected - John is doing a poor job managing his resources given the monthly deficit in spending

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

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? - Present value of an annuity due - Future value of an annuity - Present value of an annuity - Amortization schedule

Amortization schedule

What is the formula for net worth? - Assets - Liabilities - Liabilities - Assets - Debts - Liabilities - Assets - Assets + Debts - Liabilities

Assets - Liabilities

Which of the following is a better deal if you want to maximize the return on your savings? - Earning a periodic interest rate of 2.50% compounded annually - Earning a periodic interest rate of 0.2% compounded monthly - Earning a periodic interest rate of 1.25% compounded semiannually - Earning a periodic interest rate of 0.6% compounded quarterly

Earning a periodic interest rate of 1.25% compounded semiannually

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? - Buying a new home next year - Retiring in 15 years with a high standard of living - Both purchasing a moderately priced new car in 3 years and buying a new home next year - Purchasing a moderately priced new car in 3 years

Purchasing a moderately priced new car in 3 years

Kimberly needs to save $48000 over the next 6 years. If she can save $5000 per year and earn an 12% 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 $23034 - She will exceed the goal by $23034 - She will fall short of the goal by $7424 - She will exceed the goal by $7424

She will fall short of the goal by $7424

James has received a college scholarship and can choose whether to receive it as an immediate one-time payment of $5000 or as a series of four equal payments (at the end of each year), each totaling $1500. Assume that James has a discount rate of 9%. Only considering TVM principles, which option is most valuable to James? - Series of four payments of $1500 each - Immediate payment of $5000 - There is not enough information to determine the answer - Both scenarios are equal

Immediate payment of $5000

Which of the following is an example of a SMART goal? - Purchasing a new 65-foot sailboat in 3 years - Retiring at age 65 with enough money to live comfortably - Starting a business in a few years that will generate $300,000 in net sales - Saving $75,000 for the down payment on a home that will be purchased in 4 years

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

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 price that Haley paid for the car - The price of a similar Civic for sale - The amount of the loan balance outstanding on the car - The trade-in value of the car

The trade-in value of the car

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? - One input (the interest rate) - Two inputs (the interest rate and time period) - Three inputs (the interest rate, and time period, and payment amount) - Four inputs (the interest rate, and time period, and payment amount, and present value)

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

A tool that helps you determine where you actually spent your income is known as a(n): - balance sheet - net worth statement - income and expense statement - budget

income and expense statement

The power of compound interest refers to: - interest being reinvested and earning additional interest - the return on an educational investment - the return on vocational training - how long it takes to earn a certain sum

interest being reinvested and earning additional interest

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? - $237 per month for 60 months from Dealer 1 - $180 per month for 60 months from Dealer 2 - $180 per month for 60 months from Richard's bank - There is not enough information to determine which loan option will have the lowest monthly payment

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

Assume your employer offers a bonus of $6800. The only catch is that you must wait 5 years to take possession of the money. If you can earn 7% on your savings, what is the minimum you would take today in order to match the bonus? (Round answers to 0 decimal place, e.g. 5275.) - $6800 - $4848 - $9537 - $5800

$4848

Kevin has the following financial resources, assets, and liabilities: $8400 Mazda Miata; $6300 in computer equipment; $16800 in earnings; $4200 in credit card bills; and $2100 in student loans. What is Kevin's net worth? - $31500 - $25200 - $8400 - $14700

$8400

Mark has the following assets and liabilities: Cash: $470 Clothes and Furnishing: $4700 Car: $14100 Investments: $47000 Credit Card Bills: $376 Car Loan: $4700 Student Loan: $10100 What is Mark's current ratio? - 1.25 - 0.04 - 0.12 - 5.44

1.25

Use the following information to answer the question that follows about Matthew. Budget Actual Income $9750 $9750 Rent $2000 $2000 Utilities $1040 $820 Taxes $3500 $3605 Transportation $550 $770 Food at Home $385 $275 Food Away from Home $490 $800 Debt Payments $1420 $1420 Savings $365 $15 Total Expenses Surplus/Deficit Given Matthew's monthly budget and his actual income and expense information, which of the following statements is true? - Matthew ran a $235 surplus for the month - Matthew ran a $235 deficit for the month - Matthew ran a $-45 deficit for the month - Matthew ran a $45 surplus for the month

Matthew ran a $45 surplus for the month

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 - find out more information before - be indifferent to - decline

prefer